Advanced Micro (AMD) Q4 Earnings: What's in the Cards?

AdvancedMicro Devices, Inc.AMD is set to release fourth-quarter 2016 earnings on Jan 31. In the last quarter, the company reported a positive earnings surprise of 100.00%. We note that the company delivered positive earnings surprises in each of the last four quarters, with an average positive earnings surprise of 35.76%.

Shares of Advanced Micro have outperformed the broader Zacks Electronics Semiconductors industry over the last one year. While the industry gained 87.1%, the stock gained a whopping 398.1%.

Let's see how things are shaping up for this announcement.

Factors to Consider

Advanced Micro is one of the largest producers of microprocessors, GPUs and chipsets in the world. The company's improving position in key markets driven by the introduction of several APUs and GPUs remain positive ahead of its earnings release.

It should be noted that along with its popular Radeon line of GPUs, the company has been pushing the envelope with its Ryzen high- performance desktop processors

Its recent strategic partnership with Mentor Graphics on embedded technology will offer more choices to embedded developers in the x86 architecture high-performance computing segment. As more and more devices become interconnected with one another, Advanced Micro's efforts to further strengthen its position in the burgeoning embedded markets will reap benefits. (Read More: AMD and Mentor Graphics Ink Deal on Embedded Technology ).

Also, during the same month, the company introduced Radeon Instinct targeted at machine learning that augurs well for the company.

Moreover, the company announced that its FirePro server GPUs have been selected by Alphabet GOOGL to power its cloud platform in 2017. These developments are expected to help the company gain more traction in the GPU space and close in the market share gap with NVIDIA. (Read More: AdvancedMicro Scales New Highs, Clinches Deal with Google ).

However, increased costs related to product introductions are likely to impact the company's near-term profitability and have an adverse effect on quarterly earnings.

For fourth-quarter 2016, management expects revenues to decrease 18% sequentially (+/- 3%), primarily due to seasonal weakness in semi-custom and graphics products.

Non-GAAP gross margin is likely to be 32%. Non-GAAP operating expense is projected to be approximately $350 million due to an increase in R&D investments. IP monetization licensing gain is expected to be approximately $25 million.

Earnings Whispers?

Our proven model does not conclusively show that AMD is likely to beat earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here, as you will see below.

Zacks ESP: Its Earnings ESP is 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at a loss of 4 cents per share. You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter .

Zacks Rank: AMD carries a Zacks Rank #2, which when combined with a 0.00% ESP makes surprise prediction difficult.

We caution against stocks with a Zacks Rank #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Advanced Micro Devices, Inc. Price and EPS Surprise

Advanced Micro Devices, Inc. Price and EPS Surprise | Advanced Micro Devices, Inc. Quote

Stocks to Consider

Here are some companies that, as per our model, that have the right combination of elements to post an earnings beat this quarter:

Applied Optoelectronics Inc. AAOI with an Earnings ESP of +15.87% and a Zacks Rank #1.You can see the complete list of today's Zacks #1 Rank stocks here.

Oclaro, Inc. OCLR with an Earnings ESP of +10.53% and a Zacks Rank #2.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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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