Semiconductor giant Advanced Micro Devices (AMD) will report fourth quarter fiscal 2021 earnings results after the closing bell Tuesday. Having surpassed both revenue and profit estimates in ten straight quarters, it appears AMD is finally getting the respect it deserves, but not everyone believes AMD’s success can last.
AMD stock was under pressure last week, falling some 7% amid the selloff in tech. And analysts at Piper Sandler fanned more bear flames by downgrading the stock and slashing the price target. Citing several areas of concerns, including a decline in PC market, analyst Harsh Kumar rated AMD down from Overweight to Neutral. Kumar also reduced his 12-month price target to $130. The analyst also expect potential headwinds with earnings and revenue growth from the AMD’s recent deal for Xilinx (XLNX).
In the meantime, investors are wondering if the decline is the beginning of a trend or a buying opportunity. Prior to the tech route, AMD not only was seen as benefiting from secular cloud-driven growth within the datacenter and the PC market, the company was out-executing chief rival Intel (INTC) in many areas, including shifting production to higher-margin chips which boosted its gross margin and rising cash flow. And given the company’s streak of strong execution, it would be a mistake to part with AMD stock ahead of Tuesday’s results.
For the three months that ended December, Wall Street expects the California-based company to earn 76 cents per share on revenue of $4.52 billion. This compares to the year-ago quarter when earning were 52 cents per share on $3.24 billion in revenue. For the full year, earnings are expected to surge 104% year over year to $2.64 per share, while full-year revenue of $16.13 billion would rise 65.2% 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 third quarter, the company beat on both the top and bottom lines with Q3 adjusted EPS of 73 cent topping estimates by 7 cents, while Q3 revenue of $4.31 billion rose 53% year over year, topping estimates by $200 million.
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. The question is, would that be enough to give the stock a meaningful boost?
For any of that to matter, AMD on Tuesday must provide investors the news they hope for. Not only must the company deliver a top- and bottom-line beat, AMD need to guide in a manner that highlights flaws in the analysts’ report. The company should also provide some updates regarding the Xilinx deal and potential growth accretion. 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.
Read Richard's Bio