Shares of Advanced Micro Devices (NASDAQ: AMD) slumped 15.9% in May, according to data provided by S&P Global Market Intelligence . The major decline came at the beginning of the month, driven by AMD's first-quarter earnings report. While AMD's results were in line with expectations, its guidance was disappointing given the bevy of recent and upcoming product launches.
AMD reported Q1 revenue of $984 million, up 18% year over year, and a non-GAAP net loss of $0.04, up from a loss of $0.12 during the prior-year period. The computing and graphics segment produced a 29% year-over-year revenue increase, driven by the company's mainstream Polaris graphics cards and initial revenue from the launch of its Ryzen CPUs.
With Q2 set to include a full quarter of Polaris sales, a full quarter of high-end Ryzen 7 sales, and nearly a full quarter of mainstream Ryzen 5 sales, as well as potentially some contribution from the launch of AMD's high-end Vega GPU and EPYC server chips, investors were no doubt expecting some impressive guidance.
But AMD failed to deliver that. The company guided for just 12% year-over-year revenue growth for Q2 and low double-digit revenue growth for the full year. Non-GAAP gross margin is expected to be 33% during the quarter, lower than the 34% reported for Q1. Considering that the company is debuting a full slate of new products this year, this forecast simply wasn't enough to prevent the stock from tumbling.
Shares of AMD have partially recovered in June, although it's been a roller coaster ride. News that demand from cryptocurrency miners had created shortages of AMD graphics cards drove up the stock, but a broad sell-off in tech stocks pushed it back down.
AMD's long-term target is to produce non-GAAP EPS of at least $0.75 by 2020. The stock currently trades for nearly 16 times this number, which leaves very little room for error. Paying 16 times what a company hopes to earn three years from now, starting from being not profitable at all, is quite a leap of faith. Any indication that AMD will fall short of that goal could send the stock slumping.
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