Advanced Micro Devices (NASDAQ: AMD) is on fire. The stock, which is up 77% year to date, ranks among the top 10 of the S&P 500 in terms of 2023 returns.
Even so, investors shouldn't think it's too late to buy this juggernaut. Let's dig into its recent quarterly report to see why.
AMD posts a ho-hum quarter -- with one big development
On Tuesday afternoon, AMD reported second-quarter financial results for the three months ending on April 01, 2023. Highlights included:
- Total revenue of $5.4 billion, which beat estimates of $5.3 billion.
- Adjusted earnings-per-share (EPS) of $0.58/share, which beat estimates for $0.57/share.
- Gross margins of 46%.
Image source: The Motley Fool.
Let me be clear -- AMD's second-quarter results were mixed at best. Total revenue declined 18% year over year, led by a 54% drop in its Client segment, which contains AMD's Personal Computing (PC) business. Gaming segment revenue declined 4%, while its Embedded segment (formerly Xilinx) posted a 16% year-over-year increase in revenue.
Yet, its overall revenue beat expectations because the 54% drop in Client (PC) segment revenue wasn't as bad as expected.
There was, however, a hidden nugget of information buried within AMD's press release that every current or potential investor should know: Management noted a deluge of artificial intelligence (AI) engagement, with customers expanding or initiating AI projects at a rate of seven times that of the prior quarter.
AMD's stock could ride an AI wave to the stratosphere
AMD's revelation that the demand for AI is going through the roof is fantastic news, and it couldn't come at a better time. That's because AMD's MI300X chip -- meant to compete directly with Nvidia's H100 -- remains on track for delivery and sale this fall.
The MI300X GPU is designed to power the supercomputers that train Large Language Models (LLMs) -- the algorithms behind chatbots like ChatGPT. AMD already has a foothold in this space, as the company already powers more than a fifth of the world's top supercomputers.
However, MI300X could be a game-changer. It's designed to directly challenge Nvidia's dominance in the lucrative high-performance computing (HPC) sector, where the top AI chips can sell for more than $40,000.
If AMD's management can deliver on its promise to produce and sell the MI300X starting in the fall of 2023, AMD's revenue and margins could soar.
Longer term, the MI300x is important because it demonstrates a strategic shift for AMD away from the lower-margin PC and gaming business and toward the higher-margin data center and AI business.
For long-term investors, AMD remains attractive. Shares trade at a price-to-sales ratio of 8.4. That's right around its three-year average of 8.3 and well below that of AI powerhouse Nvidia, which trades at almost 45 times sales.
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Jake Lerch has positions in Nvidia and has the following options: long November 2023 $80 calls on Advanced Micro Devices and short November 2023 $120 calls on Advanced Micro Devices. The Motley Fool has positions in and recommends Advanced Micro Devices and Nvidia. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
