AMD Stock Falls 17% on 74% China AI Revenue Drop

After the U.S. market closed on February 3, processor leader AMD released its financial results for the fourth quarter and full year of 2025. Revenue and profit reached all-time highs, but the company's guidance for the first quarter of 2026 fell short of the aggressive expectations surrounding the AI boom. A sharp decline in AI chip sales to the Chinese market also weighed on sentiment, triggering a 17.31% drop in AMD's share price.

Fourth-quarter revenue climbed to $10.27 billion, up 34% year on year and well above the market estimate of $9.65 billion. Under non-GAAP accounting, net income rose 42% to $2.52 billion, while gross margin reached 57%. Operating profit hit a record $2.9 billion, and earnings per share reached $1.53, all marking new historical highs for the company.

The standout performer was the Data Center segment, which delivered $5.38 billion in revenue, up 39% from a year earlier and ahead of analyst expectations of $5.07 billion. Growth was driven by strong demand for AMD EPYC server processors and rising shipments of Instinct GPUs for AI workloads. Unexpected momentum in AI chip sales to China also helped push quarterly results beyond forecasts.

AMD disclosed that it benefited from the release of around $360 million in previously reserved inventory and related costs tied to the Instinct MI308 accelerator. Shipments of this product to China generated approximately $390 million in revenue during the quarter. Excluding the inventory adjustment and MI308 sales to China, the non-GAAP gross margin would have been about 55%.

For the full 2025 fiscal year, AMD achieved $34.6 billion in revenue, a 34% increase and another company record. Operating profit reached $7.8 billion, with non-GAAP net income of $6.83 billion, up 26% year on year. Earnings per share were $4.17, while the Data Center division contributed $16.6 billion, representing 32% annual growth.

Despite these impressive figures, investors focused on the outlook. AMD expects first-quarter 2026 revenue of around $9.8 billion (plus or minus $300 million). While the midpoint is higher than Wall Street's consensus of $9.38 billion, it did not reflect the explosive acceleration many had anticipated from AI demand.

Adding to concerns, AMD forecast that MI308 sales to China would drop to roughly $100 million in the first quarter of 2026, compared with about $390 million in the previous quarter—a steep sequential decline of more than 74%. The combination of cautious guidance and weaker China-related revenue led to heavy selling, with the stock tumbling over 17% in regular trading on February 4.

Addressing the market reaction, AMD CEO Lisa Su rejected the idea that growth is slowing. She revealed that eight of the world's top ten AI companies are already using Instinct accelerators for production workloads. Su projected that data center revenue could expand by around 60% annually over the next three to five years and said AMD's AI business could reach "tens of billions of dollars" by 2027.

Looking ahead, Su confirmed that AMD plans to begin shipping a new integrated server-level AI system code-named "Helios" in the second half of 2026. She emphasized that development remains on schedule and that the product is expected to deliver a significant inflection point for the company's growth trajectory.