Advanced Micro Devices (AMD) shares plunged more than 17% last night (April 4), marking their worst single-day drop since May 2017, closing at $200.19. Ironically, this collapse occurred just after the company released a fourth-quarter earnings report that exceeded Wall Street expectations.
What exactly caused a "better-than-expected" earnings report to trigger a panic sell-off?
Financial performance: Impressive numbers, but "not enough"
AMD announced its Q4 2025 financial results, with revenue reaching $10.27 billion, a 34% year-over-year increase, and earnings per share (EPS) of $1.53, both exceeding market consensus expectations of $9.67 billion in revenue and $1.32 in EPS. Full-year revenue reached a record high of $34.6 billion, with gross margin remaining at 50%.
The data center division was the biggest highlight, with fourth-quarter revenue reaching $5.4 billion, a 39% year-over-year increase, and full-year revenue of $16.6 billion, a 32% year-over-year increase. All of this seems like good news, but the problem is that investors expect more than just "good"—they expect "amazing" results.
Amidst the ongoing AI capital spending frenzy, tech giants including Microsoft, Meta, and Google have announced multi-billion dollar AI infrastructure investment plans, leading some analysts to bet on stronger outlooks for AMD. However, when the actual figures only "better than consensus" rather than "significantly exceeded," the disappointment of unmet expectations quickly translated into selling pressure.
2026 Q1 Guidance: Sequential Decline Sounds the Alarm
The real trigger for the sell-off was AMD's guidance for the first quarter of 2026. The company estimated first-quarter revenue of approximately $9.8 billion (plus or minus $300 million), which, while higher than the market's previous consensus expectation of $9.38 billion, representing an annual growth rate of approximately 32%, showed a significant sequential decline compared to the $10.27 billion in the fourth quarter.
In addition, AMD estimates its non-GAAP gross margin for the first quarter to be approximately 55%, down from 57% in the fourth quarter, and the decline in gross margin has further deepened market concerns.
In contrast to competitor Nvidia's long-standing pattern of "revising upwards after exceeding expectations," AMD's guidance appears conservative, raising concerns among investors that this may indicate a slowdown in the growth momentum of AI chip demand or that AMD's competitiveness in the AI accelerator market is not as strong as expected.
The China Factor: The Impact of Export Controls on MI308
Another easily overlooked but highly impactful detail in the fourth-quarter financial report is that AMD's Instinct MI308 AI chip shipments to China contributed approximately $390 million in revenue; however, due to the tightening of US export control policies, the company expects related revenue from China to plummet to only about $100 million in the first quarter.
In other words, the revenue shortfall in the Chinese market alone amounted to approximately $290 million, accounting for almost the majority of the sequential revenue decline from the fourth quarter to the first quarter. However, if the China factor is excluded, AMD's core business trajectory may actually be more robust than the surface figures suggest.
It is worth noting that AMD recognized approximately $440 million in inventory and related expenses throughout 2025 due to the US government's export controls on the MI308. Although the fourth quarter benefited from the release of a previously provisioned $360 million inventory reserve, the uncertainty surrounding export controls remains a sword of Damocles hanging over AMD.
The wave of large orders in the fourth quarter of last year is hard to replicate.
In the fourth quarter of 2025, AMD experienced a surge in collaborations and orders. Orders from major clients such as OpenAI and Oracle, coupled with shipments of the MI308 to China, boosted the quarter's performance. These one-off or seasonal factors led investors to set unrealistically high expectations for the future outlook.
When the first-quarter guidance indicated that these positive factors would not be repeated in the short term, the market reacted particularly sharply. This is a typical example of "high base pressure"—the better the performance in the previous quarter, the more difficult it is to maintain the same growth in the next quarter.
Macroeconomic Background: Concerns about an AI bubble and rotation among tech stocks
In fact, AMD's sharp drop was not an isolated incident, but the drop exceeded expectations.
On February 4th, the entire semiconductor sector came under pressure. Broadcom fell approximately 3.8%, Micron Technology plunged 9.5%, and Nvidia dropped 3.4%. The Philadelphia Semiconductor Index plummeted 347.18 points (-4.36%), closing at 7619.16.
Software stocks also suffered a sell-off, with Oracle falling 5.1% and CrowdStrike dropping approximately 1.51%. A pervasive fear that AI tools will disrupt traditional software business models led to a rapid flow of funds from tech stocks to other sectors.
CEO Lisa Su's response
Facing a sharp drop in stock price, AMD CEO Lisa Su actively defended the company in an interview on February 4th. She emphasized:
- The rapid pace of AI development has exceeded her expectations.
- Customer demand continues to rise, consistently exceeding the current pace of computing resource supply and deployment.
- The data center business saw a "significant acceleration" from the fourth quarter to the first quarter.
- The demand for CPUs is experiencing "explosive growth".
Lisa Su is attempting to shift market focus from short-term guidance fluctuations to the structural growth trend of long-term AI demand.
What do analysts think?
However, despite the sharp drop in stock price, Wall Street analysts remain predominantly positive:
| mechanism | Rating | Target price |
|---|---|---|
| UBS | Buy | $310 (down from $330) |
| Bank of America (BofA) | — | $280 (upgraded) |
| Wells Fargo | Increase holdings | $345 |
| KeyBanc | Increase holdings | $300 (up from $270) |
| Mizuho | Outperform the market | $275 (down from $285) |
| Benchmark | Buy | $325 |
Analysts' average target price is approximately $289, suggesting over 40% upside potential compared to the closing price of around $200. Most analysts believe the market overreacted to short-term guidance, and AMD's long-term growth logic in AI and data centers remains unchanged.
The harsh lessons of expectation management
The core contradiction behind AMD's recent stock price plunge lies in the fact that while the company's performance was actually not bad, market expectations were too high. In the current frenzy surrounding AI investment, simply "meeting expectations" is no longer enough; investors want "exceeding expectations, and exceeding them again."
In the short term, the revenue shortfall caused by China's export controls, the high base effect in the fourth quarter, and the risk aversion sentiment in the overall technology sector have combined to create this perfect storm. However, from a medium- to long-term perspective, AMD's data center business is still growing rapidly, the structural trend of AI demand has not changed, and the "explosive demand" described by Lisa Su has been corroborated by multiple data sources.
For investors, this serves as a classic reminder: in a market driven by narratives and expectations, good performance does not equate to good stock price performance. What truly determines short-term stock price movements is often not the absolute quality of the numbers, but rather the gap between those numbers and market expectations.
