The long-running hype around artificial intelligence (AI) and the infrastructure needed to support it has hit a bump in the road, with questions swirling on Thursday about the pace and profitability of the booming sector following disappointing reports from major players in the data centre space.
Outlying a strong Wednesday performance on the NASDAQ Composite index led by Apple and other big tech names, shares in server maker Super Micro Computer Inc. dropped more than 18% on the day, while Advanced Micro Devices Inc. (AMD) fell more than 6%, despite a relatively strong second-quarter result and overall guidance from the chipmaker.
The culprit in both cases was underwhelming performance in data centres. AMD’s 14% year-on-year revenue growth for its data centre unit slightly missed market forecasts, and quarter-on-quarter growth was down 12%, while Super Micro missed fourth-quarter estimates and downgraded guidance.
“We are nearly through the US reporting season, and one thing that has become very clear that is those companies that are reporting well are not being rewarded in their share price appreciation as much as normal due to the uncertainty and risks in the market particularly around tariff, with tariffs and uncertainty being cited by most companies as part of their earnings call to investors,” said Greg Boland, chief strategy officer at Tiger Brokers.
“Conversely, any in-line or underwhelming results have been punished by the market,” he added. “Last week, mega-caps Meta and Microsoft reported well, and their price rallied 11% and 3% respectively. Amazon was punished and fell 8%. This week, AMD and Super Micro were smacked.”
While AI-driven demand remains robust, the results have signalled a warning to investors that demand may not be translating into the explosive growth many had expected. With AI infrastructure touted as a key enabler of the next tech revolution, the tempered outlooks could have significant implications for both the sector and broader market sentiment.
AMD's data centre growth weaker than expected
AMD, a major player in the AI chip race, reported solid year-over-year growth in its Q2 2025 results, but its data centre segment left something to be desired. The company’s overall revenue of $7.69 billion marked a 32% increase from the same quarter last year, but the weaker data centre growth sparked concern for investors looking for strong momentum in the AI boom.
Despite the overall positive results, AMD's stock dropped by 6.4% following the earnings announcement, which highlighted that while the company’s EPYC processors continue to see strong demand, its MI308 Instinct chips were hit hard by export restrictions to China, costing the company an estimated $800 million.
AMD’s CEO, Lisa Su, mentioned that these restrictions were likely to continue to weigh on the company’s growth for the foreseeable future. The export challenges, compounded by other geopolitical and market factors, have dented some of the optimism surrounding the sector.
Looking ahead, AMD has projected Q3 revenue of around $8.7 billion, driven by strong demand for its next-generation AI chips, but the muted growth in its data centre business still raised concerns among analysts, with the stock price volatility signalling that investor expectations may be too high.
Super Micro: Margin squeeze and market share concerns
Super Micro Computer also reported strong year-over-year revenue growth, with Q2 2025 sales rising 7.5% to $5.76 billion but still falling short of forecasts. Margins took a significant hit, and the company issued disappointing guidance for Q3 2025, forecasting adjusted earnings of $0.40 to $0.52 per share, compared to Wall Street’s expectations of $0.59.
Super Micro’s stock was punished, plummeting by 18.3% in the wake of the announcement, with the company’s inability to turn solid revenue growth into improved profitability raising alarm bells. The firm’s margins were squeezed by rising operating expenses, tariffs and supply chain disruptions, all of which have become increasingly problematic in a fiercely competitive environment.
Analysts also expressed concerns that Super Micro is losing market share to larger rivals like Dell and Hewlett Packard Enterprise, which continue to dominate the AI server space. Both those companies also saw their shares drop in the wake of Super Micro’s results.
Super Micro had been riding high on the AI wave, with sales to cloud service providers and enterprises making up a large portion of its revenue, and the underwhelming results wiped out nearly $6 billion in market value in Wednesday trading. While the company still has significant contracts lined up for the next year, the market is clearly cautious about the ability of smaller players to thrive amid such fierce competition and rising costs.
The big picture: AI’s infrastructure struggles
The shift in outlook for AI infrastructure comes at a time when Australia’s data centre market is heating up, led by Amazon Web Services (AWS)’s announcement in June of plans to invest AU$20 billion from 2025 to 2029 to expand its data centre infrastructure in Australia — the largest technology investment in the country's history.
But both AMD and Super Micro’s earnings reports suggest that while the demand for AI infrastructure is undeniably strong, the road ahead is far from smooth. The sector is grappling with a number of challenges that could impact the pace of growth for the foreseeable future. Some of the key issues facing these companies include:
- Geopolitical risks: As seen with AMD’s reliance on exports to China and the potential for new tariffs on semiconductors, the global political landscape remains a major risk factor for companies in this space. Geopolitical tensions are creating uncertainty that could impact the supply chains of key players in the AI infrastructure market.
- Intensifying competition: Both AMD and Super Micro face growing competition from larger companies such as Nvidia, Dell and HPE. Nvidia, in particular, continues to outperform expectations, with its data centre segment seeing a remarkable 73% growth, far outpacing AMD’s 14%. Smaller players are finding it increasingly difficult to maintain their market share and margins in such a competitive environment.
- Rising costs: With supply chain disruptions, tariffs and increased operating expenses, both companies are facing margin squeezes. Super Micro, in particular, highlighted these factors as significant headwinds to profitability in the coming quarters.
- Investor expectations: After a year of explosive growth in AI stocks, investor expectations may have become overly optimistic. The earnings disappointments from AMD and Super Micro have led to a reality check, with stocks in both companies dropping significantly post-earnings. As a result, investors are starting to question whether the AI infrastructure market can continue to sustain its current valuations.
According to Boland, in the cases of AMD and Super Micro, “over-exuberance and lofty expectations have collided with reality”.
“Tariffs, uncertainty and regulatory matters must make it very difficult for company CEOs and CFOs to forecast with any degree of certainty as the landscape and goalposts change daily by this presidential regime,” he said. “It also shows a maturing of the market narrative with early exuberance around capex and AI infrastructure build giving way to scrutiny.”