Semiconductor giant Advanced Micro Devices (AMD) will report fourth quarter fiscal 2020 earnings results after the closing bell Tuesday. Expectations are high for AMD, given the strong Q4 results and upside guidance issued last week from rival Intel (INTC) that showed a rebound not only in the datacenter business, but also PC sales.
These trends bode well for AMD which has steadily gained market share from Intel in both categories. The market assumes minimal disruption to AMD’s business despite the pandemic. AMD shares have been been on the rise, climbing about 5% over the past week, and is now up 1.2% year to date. The stock’s popularity has been driven by several factors, namely AMD's execution, which includes topping the Street’s revenue estimates in five of its last six quarters. The company is well-positioned to do so again.
For the just-ended quarter, investors are anticipating, among other things, increased demand for graphic processor units evidenced by the rise in video game sales as well as increased datacenter spending, driven by the work-from-home and learn-from-home trends which has driven demand for PCs. Aside from the top and bottom line numbers, investors will focus on metrics such as shipment growth and any commentary from management about expectation for Q1 and all of 2021.
For the three months that ended December, Wall Street expects the California-based company to earn 47 cents per share on revenue of $3.02 billion. This compares to the year-ago quarter when earning were 32 cents per share on $2.13 billion in revenue. For the full year, earnings are expected to surge 92% year over year to $1.23 per share, while full-year revenue of $9.54 billion would rise 41.8% year over year.
The company’s expected surge in full-year revenue and profits is due to the strong adoption of AMD's recent products, including its second-generation EPYC CPUs, Radeon and Ryzen server processors which serves the PC, gaming, datacenter and cloud segments. The company has also begun initial shipments for the third-generation CPUs. Analysts have cited increased demand for these chips, particularly among cloud giants such as Microsoft (MSFT) and Alphabet (GOOG , GOOGL).
But not all analysts are singing AMD’s praises. Citing the potential emergence of Intel on the heels of its newly-installed CEO, BMO Capital Markets analyst Ambrish Srivastava recently downgraded AMD stock to Underperform and lowered his price target to $75. "We do think a large part of the rich valuation is also attributable to how poorly Intel has executed,” Srivastava said. “Which in turn has opened up a ‘blue sky’ scenario for how much share AMD could gain vs. Intel driving valuation even higher.”
In other words, Srivastava believes Intel can regain what it has lost to AMD. But this analysis seems too pessimistic and assumes AMD will suddenly forget how to execute. Last quarter AMD reported its fourth straight quarter of 25%+ year-over-year revenue growth. The company guided not only for revenue in the range of $2.9 to $3.1 billion, but also 45% gross margin, suggesting it believes its has tons of tailwinds heading into this quarter. All told, you would be hard-pressed to find a better-performing chip company. Thus, it would be a mistake to part with this winning hand.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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Richard Saintvilus
After having spent 20 years in the IT industry serving in various roles from system administration to network engineer, Richard Saintvilus became a finance writer, covering the investor's view on the premise that everyone deserves a level playing field. His background as an engineer with strong analytical skills helps him provide actionable insights to investors. Saintvilus is a Warren Buffett disciple who bases his investment decisions on the quality of a company's management, its growth prospects, return on equity and other metrics, including price-to-earnings ratios. He employs conservative strategies to increase capital, while keeping a watchful eye on macro-economic events to mitigate downside risk. Saintvilus' work has been featured on CNBC, Yahoo! Finance, MSN Money, Forbes, Motley Fool and numerous other outlets. You can follow him on Twitter at @Richard_STv.
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