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 it's autonomous vehicles, entertainment, or healthcare, AMD’s processors are powering people and businesses at a cutting-edge level. AMD will report third quarter fiscal 2022 earnings results after the closing bell Tuesday. Investors will look to see whether its streak of earnings beats can continue. However, the company recently released a set of preliminary Q3 numbers that weren't as prolific as the market would have liked. In the press release, the company highlighted the decline in average selling prices had an effect of $160 million worth of one-time inventory charges.
Overall, the numbers suggests plenty of uncertainty still remain about the sales trends for the fourth quarter and beyond. This has been the trend in recent quarters as the company navigates various headwind related to supply chains, declining PC demand and inflationary impacts on its high-margin enterprise business. AMD has felt these pressures over the past several months as the stock has fallen some 60% year to date, trailing the 20% decline in the S&P 500 index.
Over the trailing twelve months, the shares have suffered declines of more than 52%, while the S&P 500 index has fallen just 16%. However, the decline in the stock during that span comes even as the company still managed to surpass both revenue and profit estimates in twelve straight quarters. Assuming the company’s growth metrics remains intact in Q3 and upward guidance for Q4, this would present a great buying opportunity for AMD stock.
For the three months that ended September, Wall Street expects the California-based company to earn 72 cents per share on revenue of $5.69 billion. This compares to the year-ago quarter when earning were 73 cents per share on $4.31 billion in revenue. For the full year, ending in December, earnings are expected to rise 29% year over year to $3.60 per share, while full-year revenue of $23.88 billion would rise 45.3% year over year.
The strong forecast for top and bottom line figures for the quarter and full year underscores the strength that still exists in AMD’s business despite the recent setbacks within the datacenter and enterprise business segment where demand has moderated. Nevertheless, with the GPU (graphic processing unit) industry expected to surge close to 34% annually in the next five years, while the data center industry is expected to grow at a compound annual rate of 10.5% through 2030.
In other words, AMD should continue to enjoy strong growth trends within its most important segments, which will presents tons of pricing power not only when it comes to supply chains, but also with consumer demand. In the second quarter, the company beat on both the top and bottom lines with Q2 adjusted EPS of $1.05 which surpassed Street estimates by 2 cents, while Q2 revenue of $6.55 billion rose 70% year over year, topping estimates by $21 million.
The beat was driven by 83% surge in in data center revenue. The company also saw strength in the client segment, which includes PC processors, as revenue rose 25% year over year. Gaming revenue was also strong, rising 32% year-over-year to $1.7 billion. Meanwhile, the embedded segment revenue rose 2,228% year-over-year, thanks to revenue from the Xilinx acquisition which AMD closed in February.
The company expects no signs of slowing down, guiding for revenue to be approximately $6.5 billion to $6.9 billion, compared to consensus of $6.81 billion. For the stock to recover, AMD on Tuesday must deliver another top and bottom line beat with strong guidance for the holiday quarter.
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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