Chip giant AMD reported its first quarter earnings on Tuesday, delivering better-than-expected results on both the top and bottom lines. However, the company's lower-than-anticipated guidance for the current quarter led to a drop in its stock prices.

AMD's Q1 revenue stood at $5.5 billion, surpassing Wall Street estimates of $5.45 billion. Adjusted earnings per share (EPS) came in at $0.62, exceeding analysts' expectations of $0.61. Despite the positive Q1 performance, the company's guidance for Q2 fell short of expectations. AMD projected Q2 revenue between $5.4 billion to $6 billion, while experts predicted $5.72 billion.

The announcement from AMD comes on the heels of rival Intel's disappointing report, in which it posted a lower-than-anticipated revenue outlook for the current quarter. Both companies are vying for a position in the lucrative AI PC market currently dominated by Nvidia. With its MI300X chips, AMD aims to compete directly against Nvidia's bestselling H100 accelerators. Intel, meanwhile, is chasing Nvidia's H100 platform with its Gaudi 3 accelerators.

In Q1, AMD experienced better-than-expected Data Center revenue, reporting sales of $2.34 billion compared to Wall Street's projection of $2.31 billion. This indicates a potential threat to Nvidia's stronghold in the data center market.

Looking forward, AMD faces the challenge of stealing significant market share away from Nvidia, as the AI arms race continues to intensify. Competitors Microsoft, Google, and Meta have all recently announced substantial investments in AI data center capabilities to support their respective software offerings.

On the PC front, AMD reported Client revenue of $1.37 billion, surpassing Wall Street estimates of $1.29 billion. This was in line with the overall growth in global PC shipments, which saw a 1.5% increase in Q1 2024, marking the first period of growth after two consecutive years of decline. Intel also reported a 31% year-over-year increase in its PC chip segment revenue.

However, AMD fell short of analysts' expectations in the Gaming and Embedded revenue categories. Gaming sales reached $922 million in Q1, below the predicted $965.5 million, while Embedded revenue came in at $846 million, missing the projected $922.6 million.

The industry will closely monitor AMD's performance in the quarters to come, particularly as its MI300X chips gain traction in the market. According to UBS Global Research analyst Timothy Arcuri, the sales of MI300X chips have the potential to generate billions in revenue this year. With new competition emerging, including Qualcomm's Snapdragon X Elite and Snapdragon X Plus chips for laptops, the AI PC market is sure to see intense competition in the foreseeable future.