Why AMD Investors Are Pulling Back After Q2 Earnings

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Advanced Micro Devices, Inc. AMD Shares fell after hours on Tuesday following a second-quarter report that beat estimates — and a third-quarter earnings forecast that fell short of consensus.

AMD said it saw strength in the data center and embedded systems segments, with growth slowing elsewhere. The company maintained its guidance for the full year.

AMD Key Metrics for Q2: AMD’s second-quarter non-GAAP earnings per share were $1.05, higher than the consensus estimate of $1.03 and prior-year EPS of 63 cents.

In the prior quarter, net income was $1.13 per share.

Revenue rose 70% year-over-year to $6.55 billion and slightly exceeded the consensus estimate of $6.53 billion. In April, AMD had revenue of $6.5 billion plus or minus $200 million.

The second quarter marked the first full quarter that incorporated the contribution of Xilinx, which was acquired in February.

AMD’s gross margin contracted by 140 basis points to 46%, mainly due to the amortization of intangible assets associated with the acquisition of Xilinx. The non-GAAP margin improved 640 basis points year over year to 54%.

“We achieved our eighth consecutive quarter of record revenue thanks to our strong execution and expanded product portfolio,” said AMD’s CEO. Lisa Su.

The company ended the quarter with cash, cash equivalents and short-term investments of $6 billion.

Rival intel company INTC reported last week with below-average quarterly results, Rosenblatt Securities analyst Hans Mosesmann attributing the shortfall to “the rapid decline in economic activity, OEM inventory adjustments and a general lack of ‘execution in product design and DCAI’.

Related Link: AMD, Alibaba, Starbucks Earn on Deck as Q2 Reporting Season Passes Halfway

AMD performance by segment: AMD’s Su said each of the company’s segments saw “significant” growth from a year ago, with particular strength in the data center and embedded product categories.

Data center revenue jumped 83% year-over-year to $1.5 billion, driven by strong sales of EPYC processors. The Xilinx acquisition that was completed in February benefited in-vehicle segment revenue, which jumped 2,228% to $1.3 billion.

Customer and gaming revenue growth slowed to 25% and 32%, respectively.

AMD’s future outlook: AMD said it expects continued growth in the second half of the year, buoyed by its shipments of next-generation 5nm products and supported by its diversified business model.

AMD expects third-quarter revenue of $6.7 billion, plus or minus $200 million, marking 55% year-over-year growth. Consensus estimates call for non-GAAP EPS of $1.09 and revenue of $6.82 billion.

The company has moved toward a non-GAAP gross margin of 54%.

AMD maintained its full-year revenue guidance at $26.3 billion and its non-GAAP gross margin guidance at 54%. Analysts, on average, are modeling non-GAAP EPS and revenue of $4.38 billion and $26.18 billion, respectively, for the year.

Results Call Focal Points: Rosenblatt’s Mosesmann said he looked forward to AMD’s comments on:

  • Next-gen CPU – Ryzen 7000 and EPYC 4 based on Zen 4
  • next-gen RDNA/CDNA GPU roadmaps
  • the early synergies that Xilinx FPGAs bring to broader end markets such as communications, data center, automotive and industrial
  • AMD’s Supply Situation

AMD Price Action: Reacting to quarterly results, AMD shares fell 4.62% to $94.70 in after-hours, according to Benzinga Pro data.

AMD has fallen along with tech stocks and is down about 32.7% year-to-date. This compares to the 12.9% decline for the SPDR S&P 500 ETF Trust TO SPY and a more pronounced decline of 20.5% in the Invesco QQQ Trust QQQ.

Analysts’ average price target for AMD shares is $127.13, according to data compiled by TipRanks. This would mean the stock has room to rise by around 31%.

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