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Investors hope stronger-than-expected earnings and upbeat guidance could lead to some semiconductor momentum. Advanced Micro Devices (AMD - Free Report) is set to report on November 1, trading 63% off its highs. AMD is one of many chip stocks that have suffered amid unfavorable conditions for semiconductors.
Wall Street expects AMD to show continued improvement in its top and bottom lines after surpassing Intel (INTC - Free Report) in terms of market cap and cementing itself as a mainstay in the industry. AMD tends to have nice movements to the upside after beating expectations and when providing upbeat guidance and outlook.
Image Source: Zacks Investment Research
Boom or Bust
It is yet to be seen if AMD can sustain its path to prosperity, and be considered among elite chip stocks such as NVIDIA (NVDA - Free Report) and Qualcomm (QCOM - Free Report) . The next few years will be pivotal for the company as Intel has vowed to return to its days as an industry leader.
The possibility of a recession will also throw out the willingness of investors and Wall Street to pay a premium for AMD shares. Despite beating last quarter’s earnings expectations by 2% at $1.05 per share, the stock saw a large leg of its decline during Q3. AMD shares began to drop as market sentiment surrounding semiconductor stocks continued to deteriorate.
AMD has beaten earnings expectations for nine consecutive quarters, dating back to July 2020. The company has also delivered record revenue for eight consecutive quarters. Last quarter’s revenue of $6.6 billion represented a 70% year over year increase and operating cash flow exceeded $1 billion which should certainly help in the uncertain market environment.
Image Source: Zacks Investment Research
However, it is important to remember that despite AMD’s impressive growth over the last few years the company debuted on the NYSE in 1979. Wall Street will be monitoring if the company can keep its growth going in the right direction and not fade back into obscurity among one of the most innovative industries.
Q3 Outlook
The Zacks Consensus Estimate for AMD’s Q3 earnings is $0.67 per share, which would be a decline of -8% from Q3 2021. Sales for Q3 are expected to be up 29% at $5.58 billion. This is a major indication that operation costs are weighing on AMD’s bottom line.
Earnings estimates for the period have largely gone down from $1.10 at the beginning of the quarter. Revisions have also trended down in the last week leading up to the company’s Q3 release.
Year over year, AMD earnings are expected to be up 28%, and another 6% in FY23 at $3.83 per share. Top line growth is also expected, with sales projected to be up 45% this year and another 7% in FY23 to $25.55 billion. It is important to note that annual estimate revisions for this year and FY23 have largely declined over the last 90 days as well.
Performance & Valuation
Year to date, AMD is down -58% to underperform the S&P 500’s -19% and the Nasdaq’s -30%. The current economic environment is harder on semiconductor stocks as they are cyclical in nature and can plummet on slowing consumer demand. However, over the last five years, AMD is still up +453% to crush the benchmark and the Nasdaq.
Image Source: Zacks Investment Research
Longer-term investors are hoping AMD can get back to this stellar performance when the economy stabilizes. After reaching highs of $164.46 last November, AMD currently trades around $60 per share. At current levels, AMD has a P/E of 19.8X. This is above its peer group’s average of 12.3X. AMD does trade well below its 5-year high of 813.7X and the median of 51.6X as the company became profitable during this period.
Image Source: Zacks Investment Research
Wall Street was okay with paying a premium for AMD shares due to its growth prospects. But in the tougher operating environment, it will be important to see if the company can sustain this.
Bottom Line
AMD currently lands a Zacks Rank #5 (Strong Sell) in correlation with downward earnings estimates for the current quarter, this year, and FY23. AMD’s Electronics-Semiconductors industry is also in the bottom 17% of over 250 Zacks Industries.
The long-term growth prospects for AMD still look intact but the declining estimate revisions are cause for concern with the economy still expected to struggle in the near term. AMD has historically been an obscure company in its industry despite its impressive growth over the last five years. While the company is not expected to go back to its previous subpar performance, investors will want to monitor the valuation and premium they pay for the stock.
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Breaking Down AMD Stock Ahead of Q3 Earnings
Investors hope stronger-than-expected earnings and upbeat guidance could lead to some semiconductor momentum. Advanced Micro Devices (AMD - Free Report) is set to report on November 1, trading 63% off its highs. AMD is one of many chip stocks that have suffered amid unfavorable conditions for semiconductors.
Wall Street expects AMD to show continued improvement in its top and bottom lines after surpassing Intel (INTC - Free Report) in terms of market cap and cementing itself as a mainstay in the industry. AMD tends to have nice movements to the upside after beating expectations and when providing upbeat guidance and outlook.
Image Source: Zacks Investment Research
Boom or Bust
It is yet to be seen if AMD can sustain its path to prosperity, and be considered among elite chip stocks such as NVIDIA (NVDA - Free Report) and Qualcomm (QCOM - Free Report) . The next few years will be pivotal for the company as Intel has vowed to return to its days as an industry leader.
The possibility of a recession will also throw out the willingness of investors and Wall Street to pay a premium for AMD shares. Despite beating last quarter’s earnings expectations by 2% at $1.05 per share, the stock saw a large leg of its decline during Q3. AMD shares began to drop as market sentiment surrounding semiconductor stocks continued to deteriorate.
AMD has beaten earnings expectations for nine consecutive quarters, dating back to July 2020. The company has also delivered record revenue for eight consecutive quarters. Last quarter’s revenue of $6.6 billion represented a 70% year over year increase and operating cash flow exceeded $1 billion which should certainly help in the uncertain market environment.
Image Source: Zacks Investment Research
However, it is important to remember that despite AMD’s impressive growth over the last few years the company debuted on the NYSE in 1979. Wall Street will be monitoring if the company can keep its growth going in the right direction and not fade back into obscurity among one of the most innovative industries.
Q3 Outlook
The Zacks Consensus Estimate for AMD’s Q3 earnings is $0.67 per share, which would be a decline of -8% from Q3 2021. Sales for Q3 are expected to be up 29% at $5.58 billion. This is a major indication that operation costs are weighing on AMD’s bottom line.
Earnings estimates for the period have largely gone down from $1.10 at the beginning of the quarter. Revisions have also trended down in the last week leading up to the company’s Q3 release.
Year over year, AMD earnings are expected to be up 28%, and another 6% in FY23 at $3.83 per share. Top line growth is also expected, with sales projected to be up 45% this year and another 7% in FY23 to $25.55 billion. It is important to note that annual estimate revisions for this year and FY23 have largely declined over the last 90 days as well.
Performance & Valuation
Year to date, AMD is down -58% to underperform the S&P 500’s -19% and the Nasdaq’s -30%. The current economic environment is harder on semiconductor stocks as they are cyclical in nature and can plummet on slowing consumer demand. However, over the last five years, AMD is still up +453% to crush the benchmark and the Nasdaq.
Image Source: Zacks Investment Research
Longer-term investors are hoping AMD can get back to this stellar performance when the economy stabilizes. After reaching highs of $164.46 last November, AMD currently trades around $60 per share. At current levels, AMD has a P/E of 19.8X. This is above its peer group’s average of 12.3X. AMD does trade well below its 5-year high of 813.7X and the median of 51.6X as the company became profitable during this period.
Image Source: Zacks Investment Research
Wall Street was okay with paying a premium for AMD shares due to its growth prospects. But in the tougher operating environment, it will be important to see if the company can sustain this.
Bottom Line
AMD currently lands a Zacks Rank #5 (Strong Sell) in correlation with downward earnings estimates for the current quarter, this year, and FY23. AMD’s Electronics-Semiconductors industry is also in the bottom 17% of over 250 Zacks Industries.
The long-term growth prospects for AMD still look intact but the declining estimate revisions are cause for concern with the economy still expected to struggle in the near term. AMD has historically been an obscure company in its industry despite its impressive growth over the last five years. While the company is not expected to go back to its previous subpar performance, investors will want to monitor the valuation and premium they pay for the stock.