Semiconductor giant Advanced Micro Devices (AMD) will report first quarter fiscal 2021 earnings results after the closing bell Tuesday. Expectations have risen for AMD, given not only the strong Q1 results provided by rival Intel (INTC), but upside revenue guidance Intel issued.
Boding well for AMD is the fact that Intel’s confidence suggests there is now an expected rebound in chip demand. Investors are also now encouraged by what appears to be a re-acceleration in both datacenter revenue and PC demand. These are crucial areas for AMD which has steadily gained market share from Intel in both categories, particularly due to the launch of its Ryzen processor family and EPYC server processors.
The company’s gross margin has also been a key contributor to its success and rising cash flow. Assuming AMD’s gross margin will continue to grow, AMD stock looks significantly undervalued relative to its growth opportunity. Meanwhile, AMD stock is down more than 13% year to date, trailing the 10% rise in the S&P 500 index. Given that the company has topped the Street’s revenue estimates in six of the past seven quarters and is well-positioned to do so again, now would be an ideal time to buy AMD shares on its recent pullback.
For the three months that ended March, Wall Street expects the California-based company to earn 44 cents per share on revenue of $3.21 billion. This compares to the year-ago quarter when earning were 18 cents per share on $1.79 billion in revenue. For the full year, ending in December, earnings are expected to surge 52% year over year to $1.97 per share, while full-year revenue of $13.54 billion would rise 38.7% year over year.
The strong top and bottom line forecasts for the quarter and full year suggest the market assumes a full pandemic recovery in AMD’s business going forward. The company has began shipments for the third-generation CPUs last quarter. Analysts have cited increased demand for these chips, particularly among cloud giants such as Microsoft (MSFT) and Alphabet (GOOG , GOOGL). AMD’s own execution plays a key role in the market’s confidence.
In the fourth quarter not only did the company beat on both the top and bottom lines, AMD's Computing and Graphics segment reported revenue of $1.96 billion, up 18%, driven by strong sales of its Ryzen processors. The company's Enterprise, Embedded and Semi-Custom segment was also strong, posting Q4 revenue of $1.28 billion, which rose 176%, owing to increased demand for semi-custom and EPYC data center processor. Notably, while Intel has dominated the datacenter market, there is now a significant shift toward AMD.
The company’s full-year gross margin was 45%, up 2 percentage points over 2019. AMD cited its Ryzen and EPYC processors as the main reasons for the improvement. And there appears to be no signs of slowing down. AMD guided fiscal 2021 revenue to grow 37% year over year, ahead of consensus estimates of roughly 28%. Meanwhile, there is also the Xilinx acquisition which was recently approved by shareholders of both companies.
The deal is expected to provide AMD with even more momentum in the quarters ahead, particularly in some datacenter segments given that Xilinx pushes AMD into about 10% of the major cloud network data centers. All told, you would be hard-pressed to find a better-performing chip company. But AMD on Tuesday must deliver the goods to keep the momentum going.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
In This Story
AMDOther Topics
Technology
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.
Read Richard's Bio