Semiconductor giant Advanced Micro Devices (AMD) will report first quarter fiscal 2022 earnings results after the closing bell Tuesday. Despite consistent headwinds related to chip supply chain challenges, AMD continues to deliver strong operating results, suggesting that issues related to its rivals are their own to deal with.
Nevertheless, Intel’s (INTC) disappointing Q1 results last week dragged down the entire sector, taking AMD with it. A weak forecast in the PC market by Intel is believed to be pressure point for chip stocks. However, for AMD, the company posted almost 50% revenue growth in Q4, while EPS surged by 77%. Unlike its chief rival, AMD demonstrated strong operating leverage given that it is able to grow profits at a faster rate than its revenue.
What’s more, while its rivals struggled with a tight chip supply market, AMD used that dynamic to grow its margins. Notably, that strong revenue total did not include the impact of the Xilinx acquisition that AMD closed in February 2022. As such, having surpassed both revenue and profit estimates in twelve straight quarters, AMD stock which is down 37% year to date and 26% in six moths, deserves more respect than it’s currently getting.
Investors who are wondering whether this decline the beginning of a trend or a buying opportunity should remember that AMD continues to benefit from secular cloud-driven growth within the datacenter and the PC market. Given the company’s streak of strong execution, it would be a mistake to part with AMD stock ahead of Tuesday’s results. Assuming the company’s growth metrics remains intact in Q1 this would present a great buying opportunity for AMD stock.
For the three months that ended March, Wall Street expects the California-based company to earn 91 cents per share on revenue of $5.52 billion. This compares to the year-ago quarter when earning were 52 cents per share on $3.44 billion in revenue. For the full year, ending in December, earnings are expected to surge 43% year over year to $4.00 per share, while full-year revenue of $25.15 billion would rise 53% year over year.
The company continues to benefit from strong demand in both gaming and datacenter segments. AMD has also enjoyed success in the enterprise business. The strong top and bottom line forecasts for the quarter and full year exemplifies that level of success. In the fourth quarter, the company beat on both the top and bottom lines with Q4 adjusted EPS of 92 cents which surpassed Street estimates by 16 cents, while Q4 revenue of $4.83 billion rose 49% year over year, topping estimates by $300 million.
Notably, of the company’s consolidated revenue of $16.4 billion in 2021, 57% of that total was attributed to the computing and graphics segment, while 43% was accounted by the enterprise, embedded, and semi-custom segments. What’s more, those figures don’t yet include the potential revenue and earnings contributions Xilinx would make once the deal closes. An estimated $4 billion in revenue is expected to come from Xilinx in this fiscal year.
Assuming this 10% growth rate sustains into next year, this would put AMD’s projected revenue growth at around 23% which would be about four percentage points higher than the current 19% estimate. For any of that to matter, AMD on Tuesday must provide investors the news they hope for. Assuming these metrics have not faltered, AMD stock, which is down 10% year to date, could be a gem in the coming quarters.
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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