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Advanced Micro Devices (AMD - Free Report) delivered another great beat-and-raise quarter last week and inspired analysts to once again boost their estimates and price targets.
In Q3 results released October 26, the chip-maker reported non-GAAP earnings of 73 cents per share, which surpassed the Zacks Consensus Estimate by 10.6%. The bottom line soared 78% year over year and 16% sequentially.
Revenues of $4.31 billion outpaced the Zacks Consensus Estimate by 4.7% and surged 54% year over year. On a sequential basis, the top line increased 12%.
Robust performance from the Computing and Graphics, and Enterprise, Embedded, and Semi-Custom segments drove the year-over-year improvement.
AMD also raised its 2021 guidance for revenues on the back of strong growth across all businesses. So while this year's topline rebound of +65% growth slows down to just +16.5% next year, the business momentum implies next year's numbers will rise from current estimates.
Why I've Been Pounding the Table on AMD Since $75
I'm going to share more details about this fantastic growth -- plus a bandwagon full of analyst reactions -- but first let me explain why I was telling everyone who would listen this past spring to buy AMD at $75.
Essentially, it was all about how well CEO Lisa Su and her teams were executing in the dynamic, cutting-edges of semiconductor innovation, just like my favorite GPU-maker NVIDIA (NVDA - Free Report) .
Plus, not only was she eating Intel's lunch at every turn in PCs and notebooks with sub-10 nanometer technology, the stock was consistently trading at half the valuation of NVDA.
Even today, AMD is trading for under 8 times next year's projected sales of $18.8 billion while NVDA leaves the atmosphere (for chips) at over 21X sales!
See an excellent primer on the victory over Intel here...
I only wish I had listened to my own advice better during the recent 7% Nasdaq correction where I sold some AMD shares near $110 and then thought I could get back in under $95.
"Lol" was heard from true AMD bulls as the stock found strong support near $100 and then surged to new highs above $120 even before their stellar report last week.
Let that be a horse-trading lesson about superior growth franchises with big TAMs (total addressable markets) in multiple areas of technology, from mobile, gaming, and computing to automotive, enterprise/data, and industrial -- to say nothing of super-computers for scientific, military and government research institutions.
In short, don't look gift horses in the mouth at 6X or even 8X sales.
Revenue Segment Growth Details
Computing and Graphics segment revenues of $2.4 billion increased 44% year over year and 7% sequentially. The upside can be attributed to higher Ryzen, Radeon and AMD Instinct processor sales.
Growth in client processor average selling price (“ASP”) was driven by a favorable mix of Ryzen processor sales. GPU ASP growth in the reported quarter was driven by high-end Radeon graphics product sales and AMD Instinct data center GPU sales.
AMD partnered with Microsoft (MSFT - Free Report) to bring powerful, reliable computing to users with Windows 11, powered by Ryzen processors and Radeon graphics.
Ryzen processors witnessed strong customer adoption with Lenovo starting shipments of the Thinkbook and Thinkpad E series business laptops featuring Windows 11. Lenovo also announced Yoga Slim 7 Carbon and Yoga Slim 7 Pro. HP released two AiO devices with Ryzen processors and ASUS unveiled the Ryzen 5000 Series-based Zenbook, Zenbook PRO, ProArtStudioBook and VivoBook.
AMD launched Ryzen 5000 G-Series Desktop Processors with Radeon Graphics and Radeon RX 6600 XT graphics card in the reported quarter. The company also announced the availability of the Radeon PRO W6000X series GPUs for Mac Pro.
Enterprise, Embedded and Semi-Custom segment revenues of $1.90 billion were up 69% year over year and 20% sequentially. The year-over-year increase can be attributed to higher semi-custom product sales and EPYC processor revenues.
EPYC’s adoption rate continued to increase in the reported quarter. Argonne National Labs selected AMD EPYC processors to power a new supercomputer known as Polaris. Alphabet’s (GOOGL - Free Report) Google Cloud announced the public preview of N2D Virtual Machines powered by AMD EPYC7003 Series processors.
The company announced that second-generation AMD EPYC CPUs and AMD Radeon Pro V520 GPUs will power new sizes for Amazon EC2 G4 ad instances.
Cloudflare (NET - Free Report) selected third-generation AMD EPYC processors for its 11th generation servers that power the company’s DNS network.
Lisa Su Finally Wins Over Reluctant WS Analysts
First let's present the analysts, in order, who most deserve praise for correctly seeing the prize that we saw in the first half, when we maintained a steady bias to buy under $80.
But let's also note that most of their "old" price targets around $120 came after the Q2 report in late July -- and well after we were telling everyone we knew (my son and daughter-in-law included) to buy at $75 in March through May.
Jefferies: Analyst Mark Lipacis has been one of the biggest and oldest bulls on NVDA and so he knows the worth of AMD as well as anyone. He raised his price target to $145 (from $127) as he estimates AMD gained 280 basis points of Server CPU revenue hare in Q3 and about 180 basis points in CPU unit share.
The AMD quarter raises his conviction in his thesis that AMD's server share gains can accelerate to 200-300 points per quarter from 50-100 points per quarter. Lipacis believes AMD's next gen Zen-4 server will extend its lead and he looks forward to the company's Data Center event on Nov 8 as being the next catalyst for the stock.
Susquehanna: Analyst Christopher Rolland raised his price target to $145 (from $130) citing solid quarterly results and business outlook which allowed the company to raise their full year guidance. He said although supply constraints provided headwinds, the company's profitability is still being underestimated by many investors.
Wells Fargo: Analyst Aaron Rakers raised his price target on AMD to $145 (from $120) and while noting he would not be surprised to see AMD shares take a pause after the ramp into the Q3 print, he thinks the company's momentum remains strong.
Craig-Hallum: Analyst Christian Schwab raised his price target on AMD to $150 (from $120) on "yet another impressive quarter" and raised expectations. The analyst notes AMD continues to see strength broadly across its business, reporting better-than-expected results and guidance.
Piper Sandler: Analyst Harsh Kumar raised his price target on AMD to $140 (from $120) noting that AMD reported solid September quarter results and provided December quarter guidance ahead of expectations. Kumar expects servers to "grow nicely" in 2022, and thinks semi-custom should continue to grow in the third year of the console cycle.
Raymond James: Analyst Chris Caso raised his price target on AMD to $140 (from $110) and noted that the quarter "once again demonstrated a marked contrast with Intel's report." Caso estimates AMD has now gained 6 points of server share since earlier this year, and AMD is not experiencing the China weakness Intel mentioned on their call, he added.
Barclays: Analyst Blayne Curtis raised his price target on AMD to $135 (from $120) and kept an Overweight rating on the shares. While supply constraints limits upside into Q4, 2022 should be "another strong year" as AMD reloads on capacity "with clear leadership in Servers likely to push share above 20%," Curtis tells investors in a research note.
Mizuho: Analyst Vijay Rakesh raised his price target on AMD to $135 (from $110) and observed that Intel's recent accelerated foundry pivot could provide further share gains in server for AMD. He's probably referring to Global Foundries -- which finally went public today at a $26 billion valuation under ticker GFS -- and how long it might take INTC to get any traction in sub-10nm.
And here was the lone, reluctant bull...
Citi: Analyst Christopher Danely raised his price target on AMD to $125 (from $100) but reiterates a Neutral rating on the shares. AMD reported a "strong" Q3 due to strength from the data center and gaming end markets and guided Q4 above consensus due to the continuing share gains in servers. But Danely keeps a Neutral rating on the shares due to valuation and PC end market demand "cooling off from post-COVID normalcy returning and supply issues."
Bottom line: Keep looking for dips to buy in NVDA and AMD. And be sure to revisit my Technology Super Cycle thesis by going to Twitter @KevinBCook and joining the greatest debate I started in 2017 about how Innovation Trounces Inflation.
Disclosure: I own shares of NVDA and AMD for the Zacks TAZR Trader portfolio.
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Bull of the Day: Advanced Micro Devices (AMD)
Advanced Micro Devices (AMD - Free Report) delivered another great beat-and-raise quarter last week and inspired analysts to once again boost their estimates and price targets.
In Q3 results released October 26, the chip-maker reported non-GAAP earnings of 73 cents per share, which surpassed the Zacks Consensus Estimate by 10.6%. The bottom line soared 78% year over year and 16% sequentially.
Revenues of $4.31 billion outpaced the Zacks Consensus Estimate by 4.7% and surged 54% year over year. On a sequential basis, the top line increased 12%.
Robust performance from the Computing and Graphics, and Enterprise, Embedded, and Semi-Custom segments drove the year-over-year improvement.
AMD also raised its 2021 guidance for revenues on the back of strong growth across all businesses. So while this year's topline rebound of +65% growth slows down to just +16.5% next year, the business momentum implies next year's numbers will rise from current estimates.
Why I've Been Pounding the Table on AMD Since $75
I'm going to share more details about this fantastic growth -- plus a bandwagon full of analyst reactions -- but first let me explain why I was telling everyone who would listen this past spring to buy AMD at $75.
Essentially, it was all about how well CEO Lisa Su and her teams were executing in the dynamic, cutting-edges of semiconductor innovation, just like my favorite GPU-maker NVIDIA (NVDA - Free Report) .
Plus, not only was she eating Intel's lunch at every turn in PCs and notebooks with sub-10 nanometer technology, the stock was consistently trading at half the valuation of NVDA.
Even today, AMD is trading for under 8 times next year's projected sales of $18.8 billion while NVDA leaves the atmosphere (for chips) at over 21X sales!
See an excellent primer on the victory over Intel here...
Release the Ryzen! AMD Roars in the Nanometer Wars
I only wish I had listened to my own advice better during the recent 7% Nasdaq correction where I sold some AMD shares near $110 and then thought I could get back in under $95.
"Lol" was heard from true AMD bulls as the stock found strong support near $100 and then surged to new highs above $120 even before their stellar report last week.
Let that be a horse-trading lesson about superior growth franchises with big TAMs (total addressable markets) in multiple areas of technology, from mobile, gaming, and computing to automotive, enterprise/data, and industrial -- to say nothing of super-computers for scientific, military and government research institutions.
In short, don't look gift horses in the mouth at 6X or even 8X sales.
Revenue Segment Growth Details
Computing and Graphics segment revenues of $2.4 billion increased 44% year over year and 7% sequentially. The upside can be attributed to higher Ryzen, Radeon and AMD Instinct processor sales.
Growth in client processor average selling price (“ASP”) was driven by a favorable mix of Ryzen processor sales. GPU ASP growth in the reported quarter was driven by high-end Radeon graphics product sales and AMD Instinct data center GPU sales.
AMD partnered with Microsoft (MSFT - Free Report) to bring powerful, reliable computing to users with Windows 11, powered by Ryzen processors and Radeon graphics.
Ryzen processors witnessed strong customer adoption with Lenovo starting shipments of the Thinkbook and Thinkpad E series business laptops featuring Windows 11. Lenovo also announced Yoga Slim 7 Carbon and Yoga Slim 7 Pro. HP released two AiO devices with Ryzen processors and ASUS unveiled the Ryzen 5000 Series-based Zenbook, Zenbook PRO, ProArtStudioBook and VivoBook.
AMD launched Ryzen 5000 G-Series Desktop Processors with Radeon Graphics and Radeon RX 6600 XT graphics card in the reported quarter. The company also announced the availability of the Radeon PRO W6000X series GPUs for Mac Pro.
Enterprise, Embedded and Semi-Custom segment revenues of $1.90 billion were up 69% year over year and 20% sequentially. The year-over-year increase can be attributed to higher semi-custom product sales and EPYC processor revenues.
EPYC’s adoption rate continued to increase in the reported quarter. Argonne National Labs selected AMD EPYC processors to power a new supercomputer known as Polaris. Alphabet’s (GOOGL - Free Report) Google Cloud announced the public preview of N2D Virtual Machines powered by AMD EPYC7003 Series processors.
The company announced that second-generation AMD EPYC CPUs and AMD Radeon Pro V520 GPUs will power new sizes for Amazon EC2 G4 ad instances.
Cloudflare (NET - Free Report) selected third-generation AMD EPYC processors for its 11th generation servers that power the company’s DNS network.
Lisa Su Finally Wins Over Reluctant WS Analysts
First let's present the analysts, in order, who most deserve praise for correctly seeing the prize that we saw in the first half, when we maintained a steady bias to buy under $80.
But let's also note that most of their "old" price targets around $120 came after the Q2 report in late July -- and well after we were telling everyone we knew (my son and daughter-in-law included) to buy at $75 in March through May.
Jefferies: Analyst Mark Lipacis has been one of the biggest and oldest bulls on NVDA and so he knows the worth of AMD as well as anyone. He raised his price target to $145 (from $127) as he estimates AMD gained 280 basis points of Server CPU revenue hare in Q3 and about 180 basis points in CPU unit share.
The AMD quarter raises his conviction in his thesis that AMD's server share gains can accelerate to 200-300 points per quarter from 50-100 points per quarter. Lipacis believes AMD's next gen Zen-4 server will extend its lead and he looks forward to the company's Data Center event on Nov 8 as being the next catalyst for the stock.
Susquehanna: Analyst Christopher Rolland raised his price target to $145 (from $130) citing solid quarterly results and business outlook which allowed the company to raise their full year guidance. He said although supply constraints provided headwinds, the company's profitability is still being underestimated by many investors.
Wells Fargo: Analyst Aaron Rakers raised his price target on AMD to $145 (from $120) and while noting he would not be surprised to see AMD shares take a pause after the ramp into the Q3 print, he thinks the company's momentum remains strong.
Craig-Hallum: Analyst Christian Schwab raised his price target on AMD to $150 (from $120) on "yet another impressive quarter" and raised expectations. The analyst notes AMD continues to see strength broadly across its business, reporting better-than-expected results and guidance.
Piper Sandler: Analyst Harsh Kumar raised his price target on AMD to $140 (from $120) noting that AMD reported solid September quarter results and provided December quarter guidance ahead of expectations. Kumar expects servers to "grow nicely" in 2022, and thinks semi-custom should continue to grow in the third year of the console cycle.
Raymond James: Analyst Chris Caso raised his price target on AMD to $140 (from $110) and noted that the quarter "once again demonstrated a marked contrast with Intel's report." Caso estimates AMD has now gained 6 points of server share since earlier this year, and AMD is not experiencing the China weakness Intel mentioned on their call, he added.
Barclays: Analyst Blayne Curtis raised his price target on AMD to $135 (from $120) and kept an Overweight rating on the shares. While supply constraints limits upside into Q4, 2022 should be "another strong year" as AMD reloads on capacity "with clear leadership in Servers likely to push share above 20%," Curtis tells investors in a research note.
Mizuho: Analyst Vijay Rakesh raised his price target on AMD to $135 (from $110) and observed that Intel's recent accelerated foundry pivot could provide further share gains in server for AMD. He's probably referring to Global Foundries -- which finally went public today at a $26 billion valuation under ticker GFS -- and how long it might take INTC to get any traction in sub-10nm.
And here was the lone, reluctant bull...
Citi: Analyst Christopher Danely raised his price target on AMD to $125 (from $100) but reiterates a Neutral rating on the shares. AMD reported a "strong" Q3 due to strength from the data center and gaming end markets and guided Q4 above consensus due to the continuing share gains in servers. But Danely keeps a Neutral rating on the shares due to valuation and PC end market demand "cooling off from post-COVID normalcy returning and supply issues."
Bottom line: Keep looking for dips to buy in NVDA and AMD. And be sure to revisit my Technology Super Cycle thesis by going to Twitter @KevinBCook and joining the greatest debate I started in 2017 about how Innovation Trounces Inflation.
Disclosure: I own shares of NVDA and AMD for the Zacks TAZR Trader portfolio.