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Bull of the Day: Advanced Micro Devices (AMD)

Advanced Micro Devices (AMD) has been one of the biggest success stories in the semiconductor space over the last five years, with its stock up from under $2 per share to over $50. And it's not too late to buy because the company’s various offerings expose it to growth in data centers, gaming, and more.

AMD shares have cooled off recently, down around 3% in the last three months, as tech continues to climb. But AMD stock looks strong heading into its upcoming second quarter earnings release that’s due out on July 28.

Why AMD

AMD’s processor offerings service the gaming industry, as well as data centers, and the PC market. Its GPUs compete against the likes of Nvidia (NVDA) and other gaming giants and its CPUs challenge industry titan Intel (INTC). The firm’s ability to expand beyond the PC market into gaming and servers has helped catapult its sales and its stock price as it rides multiple secular trends such as cloud computing.

AMD’s revenue surged 50% in the fourth quarter and another 40% in Q1, despite the coronavirus. Last quarter’s sales growth was driven by its 7-nanometer Ryzen, Radeon, and EPYC processors. The company also posted its highest gross margin in eight years, at 46%, up from 41% in the year-ago period.

Investors should note that Apple (AAPL) is an AMD customer and the firm works with cloud giants such as Microsoft (MSFT), Google (GOOGL), and IMB (IBM), which have all announced new offerings utilizing AMD’s second generation EPYC processors.

CEO Lisa Su noted on her company’s Q1 earnings call in late April that it expects to benefit in the second half of 2020 as it helps support the holiday season launches of both the new PlayStation 5 and Xbox Series X consoles.

 

 

 

 

 

 

 

 

 

 

 

 

Other Fundamentals

AMD stock is up nearly 3,000% over the last five years and the nearby chart shows that it outpaced chip standouts such as NVDA, Applied Materials (AMAT), and Micron (MU) over the last three years. AMD shares have also topped its industry in 2020, up 19% against 11%.

As we mentioned at the top, the stock is down around 3% in the last three months to trail the semiconductor market’s 17% climb. But the fact that AMD rests around 8% off its February 2020 highs at around $55 per share might set up a better buying opportunity.  

Despite outclimbing NVDA stock over the last three years, AMD trades at a massive discount against its fellow industry star at 7X forward 12-month sales vs. 16X. AMD is also currently trading below its own 12-month highs of 8.1X.

 

 

 

 

 

 

 

 

 

 

 

Outlook

AMD, unlike many big tech firms, provided full-year financial guidance in the face of pandemic uncertainty, which is a positive sign all of its own.

That said, our current Zacks estimates call for AMD’s second quarter revenue to jump 21%, with its full-year sales expected to surge roughly 25% to $8.39 billion. This growth would easily top FY19’s 4% top-line expansion and come in above FY18’s 23% and FY17’s 22%, which is impressive considering that AMD stock soared during that stretch.

Peeking even further ahead, its FY21 revenue is projected to climb another 19% higher to $10 billion. And the company’s bottom-line outlook appears even stronger, if you can believe that during these times.

AMD’s adjusted Q2 earnings are projected to skyrocket 100% to $0.16 per share, with its full-year 2020 EPS figure expected to surge 58% to $1.01 per share. The chip firm is then projected to follow up this adjusted earnings growth with another nearly 50% jump in 2021 to reach $1.49 per share.  

Bottom Line

AMD is currently a Zacks Rank #1 (Strong Buy) that has seen some positive earnings revisions in the last seven days.

Investors might want to wait for some updates when it reports its second quarter results at the end of July, before thinking about pulling the trigger. In the end, though, AMD appears to be worth considering as a longer-term buy.  

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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