Despite consistent headwinds with chip supply chain challenges, semiconductor giant Advanced Micro Devices (AMD) continues to deliver strong operating results, while growing market share in several high-growth industries.
Whether its autonomous vehicles, entertainment, healthcare, AMD’s processors are powering people and businesses at a cutting-edge level. What’s more, the company continues to benefit from secular cloud-driven growth within the datacenter, suggesting that issues related to rivals are their own to deal with. The company will report second quarter fiscal 2022 earnings results after the closing bell Tuesday. Investors will look to see whether its streak of earnings beats can continue.
Meanwhile, AMD has felt the pressure of the market correction over the past several months as the stock has fallen 36% year to date, trailing the 14% decline in the S&P 500 index. Intel’s disappointing Q2 results last week dragged down the entire chip sector, taking AMD with it. A weak forecast in the PC market by Intel is believed to be the pressure point for chip stocks. However, the decline in AMD stock in response to Intel does not reflect the strong execution under which AMD has operated. AMD continues to demonstrate strong operating leverage, while growing profits at a faster rate than revenue.
What’s more, while its rivals struggled with a tight chip supply market, AMD used that dynamic to grow its margins. As such, having surpassed both revenue and profit estimates in twelve straight quarters, AMD stock deserves more respect than it’s currently getting. AMD chips will be leading the way as semiconductor chips become more prevalent throughout all industries. Assuming the company’s growth metrics remains intact in Q2 this would present a great buying opportunity for AMD stock.
For the three months that ended June, Wall Street expects the California-based company to earn $1.03 per share on revenue of $6.53 billion. This compares to the year-ago quarter when earning were 63 cents per share on $3.85 billion in revenue. For the full year, ending in December, earnings are expected to surge 57% year over year to $4.39 per share, while full-year revenue of $26.21 billion would rise 59.5% year over year.
While the company continues to benefit from strong demand in gaming, it is within the datacenter and enterprise business segment where AMD continues to enjoy strong success. Whether it’s general-purpose computing, technical computing or accelerated computing, AMD aims to deliver a full range of datacenter workloads that enable businesses to drive outcome. The strong top and bottom line forecasts for the quarter and full year exemplifies that level of success.
In the first quarter, the company beat on both the top and bottom lines with Q1 adjusted EPS of $1.13 which surpassed Street estimates by 20 cents, while Q1 revenue of $5.9 billion rose 71% year over year, topping estimates by $330 million. Notably, that strong revenue total only partially included revenue from the Xilinx acquisition which AMD closed in February. Just as impressive, first quarter gross margin of 48% came in above estimates, while operating margin of 16% yield operating income of $951 million.
The company expects no signs of slowing down, guiding for revenue to be approximately $6.5 billion, or almost 70% higher year over year and roughly 10% higher sequentially. All told, not only will the semiconductors remain a growth driver for almost every industry, AMD is poised to lead the way. As such, the decline in AMD stock is a solid buying opportunity. AMD on Tuesday must do its part and deliver another top and bottom line beat with strong guidance.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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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