What a week for investors in semiconductor stocks -- the right ones, that is.
On Monday I told the tale of Intel's (INTC - Free Report) fall from grace as competitors left it behind in their race to get ever smaller in the nanoscale world of sub-10nm transistor architectures...
The Tech Analyst Who Screamed Buy TSM at $50!
Last Friday, Intel's pain (-16%) was exactly the gain (+16%) of peer Advanced Micro Devices (AMD - Free Report) , who has adopted 7nm technology by outsourcing to the premier Asian foundry, Taiwan Semiconductor (TSM - Free Report) .
And today the AMD ascendancy to the game of nanometer thrones is complete after the company delivered a stunning quarterly earnings report last night, with unbelievable growth in guidance for the second half.
In the video that accompanies this article, I go over the whole story. And I also share a bunch of slides from recent AMD investor presentations that explain why the company is not only en fuego in data centers and gaming -- just like NVIDIA (NVDA - Free Report) -- but also in PC and laptop land because they offered what Intel could not in the nano universe.
Grow It Like It's Software
This was a powerful "beat and raise" quarter that sent Wall Street into a whirlwind of upgrades and frenzied buying today. Here are some highlights from AMD's Q2 and second-half outlook...
Advanced Micro Devices reported Q2 2020 non-GAAP earnings of 18 cents per share, which surpassed the Zacks Consensus Estimate by 12.5%. Notably, the bottom line soared 125% year over year, while remaining flat sequentially.
Revenues of $1.93 billion outpaced the Zacks Consensus Estimate by 4.3% and surged 26% year over year. On a quarter-over-quarter basis, the top line improved 8%.
Strength in Computing and Graphics segment drove year-over-year improvement. Markedly, Datacenter products contributed more than 20% to total Q2 revenues.
Following these impressive results, the company offered revised -- and stellar -- 2020 revenue guidance.
AMD expects Q3 2020 revenues of $2.55 billion (+/-$100 million), indicating year-over-year and quarter-over-quarter growth of 42% and 32%, respectively. The Zacks Consensus Estimate for third-quarter revenues was pegged at $2.31 billion.
For 2020, AMD now projects revenues to grow 32% over 2019 backed by momentum in PC, gaming and data center products. Previously, AMD had projected growth of 25% (+/-5%) over 2019.
The Zacks Consensus Estimate for revenues for 2020 is pegged at $8.39 billion, indicating year-over-year improvement of 24.6%.
I look forward to the next few days as investment bank research analysts update their sales and profit models for AMD to see if they boost next year's projected 20% topline growth of $10 billion by any meaningful amount.
As it stands after today's 13% surge in shares, the stock is trading at over 8X forward sales and over 50X forward EPS. Not a bargain in semis, but since CEO Lisa Su is growing revenues like a software company, I think investors will continue to pay up for this innovator -- to say nothing of the 50% profit growth this year and next.
Analysts Who Got It Right
Speaking of innovators, my colleague Dave Bartosiak runs a portfolio here at Zacks called Blockchain Innovators where he picks stocks that are leading the revolution in next-gen payment systems, security, and cloud architectures.
He scooped up AMD shares in July of 2018 at $16. Today, many of his early followers are enjoying long-term open gains in excess of 365% on AMD's rally over $75.
Meanwhile, some Wall Street analysts are scrambling to catch up. I am seeing these headlines on TheFly.com by many who got it right, and a few who just don't get it...
"Susquehanna upgrades AMD with $85 target on widening gap versus Intel" (this lead call sums up the "seismic semi shift" of the year!). Now here are the rest of the bandwagon...
AMD price target raised to $85 from $75 at Wedbush
AMD price target raised to $84 from $71 at RBC Capital
AMD price target raised to $77 from $59 at Mizuho
AMD price target raised to $75 from $70 at Deutsche Bank
AMD price target raised to $72 from $55 at Wells Fargo
AMD price target raised to $70 from $50 at BMO Capital
AMD price target raised to $62 from $52 at JPMorgan
AMD price target raised to $75 from $33 at Credit Suisse (whoa! a lil behind the curve here)
And finally "Citi reiterates Sell on AMD, ups target to $9 from $8."
Say what?! In the video, when I saw this last headline from the Citigroup analyst, I just assumed it was a typo on their topline estimate or something. But here was the summary view of an analyst trapped on some weird Twilight Zone time warp, courtesy of TheFly.com...
Citi analyst Christopher Danely raised the firm's price target on AMD to $9 from $8 and reiterated a Sell rating on the shares following last night's "strong" Q2 results. The analyst still sees a "high" valuation and downside to estimates given his expectations of a price war and PC/data center slowdown. AMD's PC and data center outlook in the second half of 2020 is too optimistic, Danely tells investors in a research note.
We can't get them all right. But sometimes you have to either try to understand what the unique industry dynamics are driving growth and investor commitment to those trends, or step aside.
Multiple Innovation Tangents Create Raving Fans
For those interested in the particulars of AMD's resurgent growth, including Ryzen, EPYC, and Radeon chips and GPUs -- making both Intel and NVIDIA nervous -- I include those details below.
If you've read enough though, click on the video link above and listen to me rant for a bit on all things nanoscale, including those AMD slides showing their next-gen dive to 5 nanometers.
Computing and Graphics segment revenues (70.8% of total) at $1.37 billion, improved 45% year over year. This can be attributed to robust adoption of Ryzen processors. The figure declined 5% sequentially, but client processor average selling price (ASP) improved year over year on higher Ryzen processor sales.
AMD’s latest series of notebook processors — Ryzen 4000 — offer superior performance and longer battery life. This has been enabling the company to strengthen its mobile processor business.
Ryzen 4,000 Series processors sales surged significantly in the second quarter, which led to strong double-digit percentage growth in mobile revenues. Besides year-over-year, revenues more than doubled courtesy of a significant increase in unit shipments and ASP.
Management remains optimistic regarding the growing clout of Ryzen 4000 mobile processor families across leading OEMs. As well they should since Ryzen PRO 4000 Series processors are powering more than 30 ultra-thin premium and gaming consumer notebooks launching for multiple OEMs this year.
Enterprise, Embedded and Semi-Custom segment revenues (29.2% of total) at $565 million were down 4% year over year but up 62% sequentially.
In server domain, strength in AMD’s latest EPYC processors are enabling the company to win new deals from major enterprise, cloud, and HPC (high-performance computing) companies and research universities.
In cloud vertical, AMD’s 2nd Gen EPYC processors witnessed traction across Amazon (AMZN - Free Report) Web Services, Tencent, and Microsoft (MSFT - Free Report) Azure. Moreover, major cloud players utilized server processors to meet accelerated demand for collaboration services induced by the coronavirus work-from-home wave and increased use of online schooling solutions.
AMD’s focus on introducing new high-performance processors to support complex applications, advanced modeling, database and hyper-converged workloads is driving growth. In enterprise domain, Dell, Lenovo and HPE have selected EPYC processors to power their respective next gen platforms.
Considering the HPC vertical, AMD’s 2nd Gen EPYC processor wins across standout research facilities like Indiana University, Purdue and CERN, remain noteworthy. Moreover, the processors have been selected by Amazon, Oracle, Microsoft and IBM to power their respective cloud based HPC offerings.
Disclosure: I own NVDA shares for the Zacks TAZR Trader portfolio.
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