After a nearly doubling this year, Advanced Micro Devices (NASDAQ:) stock appears to be running out of gas.
The company’s latest earnings report Wall Street. Net income at the Santa Clara, Calif.-based company rose to $120 million, or 11 cents per share, compared with $102 million, or 9 cents, a year ago, in GAAP earnings. Revenue at AMD rose 9% to $1.8 billion. The adjusted per-share profit was 18 cents. On that basis, analysts expected AMD to report a per-share profit of 18 cents on revenue of $1.81 million.
While AMD reported its highest quarterly sales since 2005 thanks to strong sales of its 7nm Ryzen processors, Radeon graphics chips and EPYC server chips, the company also issued its second straight disappointing guidance.
Disappointing Wall Street Yet Again
Of course, “disappointing” is in the eye of the beholder. AMD’s revenue projection for the current quarter is between $2.05 billion to $2.15 billion, roughly a 48% increase. Wall Street’s expectations were for $2.15 billion. The stock sold off in after-hours trading before rebounding.
Gains in AMD’s Computing and Graphics division continued to offset weaknesses in the company’s Enterprise, Embedded and Semi-Custom business in its latest quarter.
Microsoft’s decision to is giving the moribund PC market a boost, which is good news for AMD’s Computing and Graphics business and its rivals. The unit’s sales jumped 36% to $1.28 billion, its best performance since 2011. Operating income rose nearly 80% to $179 million.
Keep in mind, though, that the PC market continues to have its challenges. Data from estimates that worldwide shipments gained 1.1% on a year-over-year basis in the third quarter. The U.S. posted a 0.3% decline as gains in desktop PCs couldn’t overcome a third consecutive quarter of declines for mobile PCs.
AMD’s Enterprise, Embedded, and Semi-Custom business continue to underperform because of soft demand for game consoles like the Microsoft (NASDAQ:) Xbox and Sony (NYSE:) PlayStation. Revenue slumped 27% year-over-year to $525 million. Operating income fell to $61 million as operating expenses rose.
AMD expects better times ahead for the division as new gaming consoles arrive for the holiday season. I am not sure whether any of these devices will be “game-changers” — excuse the pun. Market research from Knowledge Sourcing Intelligence expects the console market to have a compound annual growth rate of about 4% for the next few years.
AMD Stock Is No Bargain
Shares of AMD have skyrocketed more than 1,000% over the past five as the chipmaker emerged from the shadow of its much larger rival Intel, which gained 66 percent during that same period.
About the only reason to buy AMD stock is as a 5G play. As my colleague Healy noted last year, the company will benefit from the growing numbers of data centers that will need to be located near cell towers. Even so, whatever good news associated with AMD stock is already reflected in its lofty valuation.
With a trailing price-to-earnings multiple topping 179, AMD trades at a premium to rivals, including Intel (NASDAQ:) (13.1), Nvidia (NASDAQ) (45.2) and Texas Instruments (NASDAQ:) (21.9). The average 52-week price target for AMD stock is $34.59, about where it currently trades. AMD stock is going to tread water for the foreseeable future and should be avoided unless there is a significant price drop.
As of this writing, Jonathan Berr had no positions in the aforementioned stocks.
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