Shares of Advanced Micro Devices fell sharply in early premarket trading on Wednesday after the chipmaker’s first-quarter revenue outlook failed to live up to the market’s loftiest expectations.

The sharp pullback in early Wednesday trading underscored a growing reality in the AI-driven chip rally: strong earnings are no longer sufficient when expectations are stretched to extremes.

The stock slid about 9% in premarket trading after the company’s first-quarter outlook failed to fully satisfy investors who had been positioned for an even more aggressive forecast, given the scale of global spending on artificial intelligence infrastructure. The selloff came despite AMD delivering a solid fourth quarter that beat Wall Street estimates and reinforced its status as one of the most important challengers to Nvidia in the AI chip market.

AMD reported fourth-quarter revenue of $10.27 billion, topping LSEG consensus estimates of $9.67 billion. The result capped a year in which the company benefited from surging demand for data-center processors, particularly graphics and accelerator chips used in AI training and inference.

For the first quarter, AMD projected revenue of $9.8 billion, plus or minus $300 million. While the midpoint was still above the broader market estimate of around $9.38 billion, some analysts had expected a more forceful signal that AI-related demand would drive a steeper sequential ramp.

That disconnect between expectations and guidance proved costly for the shares.

“Expectations were pretty sky high,” said Chris Rolland, a semiconductor analyst at Susquehanna, in comments on CNBC.

He added that AMD’s disclosure of China-related revenue shipments in the quarter, which were not fully reflected in analysts’ models, made the headline beat appear stronger than it otherwise would have been.

“When you account for that, the beat was far less substantial than we would’ve thought,” Rolland said.

China exposure and regulatory risk

The reference to China highlights a sensitive area for U.S. chipmakers. Export controls imposed by Washington have limited the types of advanced AI chips that can be sold into the Chinese market, forcing companies like AMD and Nvidia to redesign products to comply with restrictions.

Any revenue tied to China is closely watched by investors, both for sustainability and for the risk of further regulatory tightening. AMD did not provide extensive detail on how much of its recent growth was linked to China-specific products, but the mere presence of that revenue added complexity to the market’s assessment of underlying demand.

Despite the near-term disappointment, there was little indication that AMD’s longer-term AI story has weakened. Demand for its data-center products remains strong, and analysts say the company continues to signal large-scale deployments ahead.

Rolland noted that AMD has hinted at multi-gigawatt AI contracts, a scale that underscores how rapidly computing requirements are expanding as companies race to deploy and monetize AI systems.

That trajectory is reinforced by AMD’s recent strategic partnerships. In October, the company announced a landmark agreement with OpenAI, under which the ChatGPT developer could take up to a 10% equity stake in AMD. As part of the deal, OpenAI plans to deploy 6 gigawatts of AMD Instinct GPUs over several years, starting with an initial 1-gigawatt rollout in the second half of 2026.

The partnership positions AMD as a core supplier in one of the world’s most visible AI ecosystems and marks a significant endorsement of its hardware roadmap.

In addition, Oracle said it will deploy 50,000 AMD AI chips beginning later this year as it expands cloud capacity to meet rising demand for AI workloads from enterprise customers.

Valuation pressure in an AI market

AMD’s stock has more than doubled over the past year, fueled by optimism that it can capture meaningful share in a market long dominated by Nvidia. That rally, however, has also raised the bar for performance.

Investors are increasingly demanding not just growth, but clear evidence that AI-related revenue will scale rapidly enough to justify current valuations. Any hint of moderation — even in the context of a beat-and-raise quarter — risks triggering sharp reactions.

The response to AMD’s guidance mirrors a broader pattern across AI-linked stocks, where earnings season has become less about whether companies are benefiting from AI, and more about how quickly that benefit is accelerating.

Looking ahead, the focus will be on how quickly AMD can convert its growing list of AI partnerships into sustained revenue growth, particularly in its data-center segment. Investors will also watch for clearer disclosure around the mix of training versus inference workloads, competition with Nvidia’s next-generation chips, and the impact of export controls on international sales.

For now, Wednesday’s selloff suggests that the AI boom has entered a more demanding phase. For AMD, the long-term opportunity remains intact, but the market is signaling that optimism alone is no longer enough.