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Advanced Micro (AMD) Up 14.5% Since Last Earnings Report: Can It Continue?

It has been about a month since the last earnings report for Advanced Micro Devices (AMD). Shares have added about 14.5% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Advanced Micro due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

AMD Q1 Earnings Beat Estimates, Revenues Up Y/Y

Advanced Micro Devices reported first-quarter 2024 non-GAAP earnings of 62 cents per share, beating the Zacks Consensus Estimate by 3.33%. The figure climbed 3.3% year over year.

Revenues of $5.47 billion beat the Zacks Consensus Estimate by 0.99% and inched up 2.2% year over year. The top-line growth benefited from robust Data Center and Client revenues that fully offset sluggishness in the Gaming and Embedded segments.

Top-Line Details

Data Center revenues surged 80.5% year over year to $2.34 billion and accounted for 42.7% of total revenues. The top line benefited from the strong adoption of AMD Instinct MI300X GPUs and a double-digit percentage increase in CPU sales. Sequentially, revenues increased 2%.

In cloud, server CPU revenues increased year over year and sequentially as North American hyperscalers expanded fourth Gen EPYC Processor deployments to power their internal workloads and public instances.

Exiting first-quarter 2024, AMD had more than 900 public cloud instances available, with Amazon, Google and Microsoft increasing their usage fourth-gen EPYC processor offerings with new instances and regional deployments.

In enterprise, sales accelerated with deployments by large enterprises like American Airlines, DBS, Emirates Bank, Shell, and STMicro. AMD stated that Oracle  Exadata, the leading database solution, is now powered exclusively by fourth-gen EPYC processors.

Microsoft, Meta, Oracle and other cloud providers announced further MI300X deployments in the reported quarter. Dell Technologies, HPE, Lenovo, Supermicro and others are also adopting AMD’s MI300X.

The Client segment’s revenues soared 85.1% year over year to $1.37 billion and accounted for 25% of total revenues. Ryzen desktop CPU sales grew by a strong double-digit percentage year over year and Ryzen mobile CPU sales nearly doubled year over year as new Ryzen 80-40 notebook designs from Acer, Asus, HP, Lenovo and others ramped up.

The Gaming segment revenues fell 47.5% year over year to $922 million and accounted for 16.8% of total revenues. Sequentially, revenues declined 33%. The year-over-year decline was primarily attributed to lower semi-custom revenues. In Gaming Graphics, revenues declined year over year and sequentially.

The Embedded segment revenues were $846 million, down 45.8% year over year and 20% sequentially. The segment accounted for 15.5% of total revenues.

Operating Details

Non-GAAP gross margin expanded 230 basis points (bps) on a year-over-year basis to 52.3%, primarily due to lower Embedded segment revenues.

Non-GAAP operating expenses increased 9.7% year over year to $1.74 billion.

Non-GAAP operating margin contracted 20 bps on a year-over-year basis to 20.7% in the first quarter.

Balance Sheet & Cash Flow

As of Mar 30, 2024, AMD had cash and cash equivalents (including marketable securities) of $6.04 billion compared with $5.77 billion as of Dec 30, 2023.

As of Mar 30, 2024, total debt was $2.47 billion, unchanged from the figure reported as of Dec 30, 2023.

Operating cash flow was reported at $521 million compared with $381 million in the fourth quarter of 2023.

Free cash flow was $379 million in the first quarter of 2024 compared with $242 million in the fourth quarter of 2023.

Guidance

AMD expects second-quarter 2024 revenues to be $5.7 billion (+/-$300 million). At the mid-point of the revenue range, this represents year-over-year growth of approximately 6% and sequential growth of approximately 4%.

Sequentially, AMD expects Data Center segment revenues to increase by a double-digit percentage, primarily driven by the data center GPU ramp. Client segment revenues are expected to increase, while Embedded segment revenues are expected to be flat. Gaming segment revenues are expected to decline by a significant double-digit percentage.

Year over year, AMD expects Data Center and Client segment revenues to be up significantly, driven by the strong product portfolio. The Embedded and the Gaming segment revenues are expected to decline by a significant double-digit percentage.

For the second quarter, AMD expects non-GAAP gross margin to be roughly 53%. Non-GAAP operating expenses are expected to be nearly $1.8 billion.

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How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended downward during the past month.

VGM Scores

Currently, Advanced Micro has a subpar Growth Score of D, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of F on the value side, putting it in the fifth quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Advanced Micro has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

Performance of an Industry Player

Advanced Micro belongs to the Zacks Electronics - Semiconductors industry. Another stock from the same industry, Amkor Technology (AMKR), has gained 7.3% over the past month. More than a month has passed since the company reported results for the quarter ended March 2024.

Amkor Technology reported revenues of $1.37 billion in the last reported quarter, representing a year-over-year change of -7.2%. EPS of $0.24 for the same period compares with $0.18 a year ago.

For the current quarter, Amkor Technology is expected to post earnings of $0.23 per share, indicating a change of -11.5% from the year-ago quarter. The Zacks Consensus Estimate remained unchanged over the last 30 days.

Amkor Technology has a Zacks Rank #1 (Strong Buy) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of A.

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