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Advanced Micro (AMD) Up 32.4% Since Last Earnings Report: Can It Continue?

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It has been about a month since the last earnings report for Advanced Micro Devices (AMD - Free Report) . Shares have added about 32.4% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Advanced Micro due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

AMD Q3 Earnings Meet Estimates, Data Center Growth Aids Top Line

AMD reported third-quarter 2022 non-GAAP earnings of 67 cents per share, which came in line with the Zacks Consensus Estimate but declined 8.2% year over year.

Revenues of $5.57 billion missed the Zacks Consensus Estimate by 0.28% but increased 29% year over year.

The strong year-over-year growth benefited from higher Data Center, Gaming and Embedded revenues as AMD continues to expand its presence across a broader set of markets and customers.

Top-Line Details

AMD announced new reporting segments — Data Center, Client, Gaming and Embedded — beginning second-quarter 2022.

Data Center comprises server CPUs, data center GPUs, Pensando and Xilinx data center products. Revenues jumped 45.2% year over year to $1.61 billion and accounted for 28.9% of total revenues. The segment benefited from strong sales of third-gen EPYC server processors.

Cloud revenues more than doubled year over year and increased sequentially as multiple hyperscalers expanded the deployment of EPYC processors.

More than 70 new AMD instances were launched by Microsoft, Amazon, Tencent, Baidu and others in the reported quarter.

Microsoft’s cloud offering Azure announced the general availability of new confidential computing VMs uses AMD’s security technologies offered by EPYC processors and new GPU-accelerated VMs.

Moreover, Amazon’s cloud arm Amazon Web Services announced the new memory-optimized instances powered by EPYC processors.

However, data center GPU revenues were down significantly year over year against tough comparisons. Nevertheless, AMD witnessed record sales of Xilinx FPGA and networking data center products, driven by strong demand from cloud and financial customers.

Pensando DPUs also witnessed strong demand in the reported quarter. AMD supported VMware’s launch of its next-generation cloud virtualization platform. Pensando DPUs will be included in the first validated server and HCI solutions, supporting the new VMware virtualization offerings from Dell, HPE and others.

Client segment includes desktop and notebook PC processors and chipsets. Revenues declined 39.6% year over year to $1.02 billion and accounted for 18.4% of total revenues.

The Gaming segment includes discrete graphics processors and semi-custom game console products. Revenues increased 13.7% year over year to $1.63 billion and accounted for 29.3% of total revenues. The top line benefited from higher semi-custom product sales, partially offset by a decline in gaming graphics revenues.

The Embedded segment includes AMD and Xilinx embedded products. Revenues were $1.30 billion compared with the year-ago quarter’s $79 million. The segment accounted for 23.4% of total revenues.

AMD benefited from strong demand for its products in aerospace and defense, industrial and communications end-markets.

Operating Details

Non-GAAP gross margin expanded 150 basis points (bps) on a year-over-year basis to 49.9%. The gross margin expansion was primarily driven by higher Embedded segment revenues.

Non-GAAP operating expenses increased 46.9% year over year to $1.52 billion.

Non-GAAP operating margin of 27.3% expanded 330 bps on a year-over-year basis.

Balance Sheet & Cash Flow

As of Sep 24, 2022, AMD had cash and cash equivalents (including marketable securities) of $5.59 billion compared with $5.99 billion as of Jun 25, 2022.

As of Sep 24, 2022, total debt was $2.47 billion compared with $2.78 billion as of Jun 25, 2022. The company repaid the $312 million 7.50% Senior Notes that matured in August.

Operating cash flow was reported at $965 million compared with $1.04 billion in second-quarter 2022.

Free cash flow was $842 million in the third quarter compared with $906 million in second-quarter 2022.

AMD used $617 million to buy back shares. The company has $6.8 billion remaining in its authorization for share repurchase.

Guidance

AMD expects fourth-quarter 2022 revenues to be $5.5 billion (+/-$300 million), which indicates year-over-year growth of 14%.

AMD expects to witness growth in Embedded and Data Center segments, partially offset by a decline in the Client and Gaming segments.

Non-GAAP gross margin is anticipated to be 51%.

For 2022, AMD expects revenues to increase 43% year over year to $23.5 billion (+/-$300 million).

AMD expects the non-GAAP gross margin for 2022 to be 52%.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates.

The consensus estimate has shifted -20.96% due to these changes.

VGM Scores

At this time, Advanced Micro has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. Charting a somewhat similar path, the stock was allocated a grade of F on the value side, putting it in the bottom 20% quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Advanced Micro has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.

Performance of an Industry Player

Advanced Micro is part of the Zacks Electronics - Semiconductors industry. Over the past month, Amkor Technology (AMKR - Free Report) , a stock from the same industry, has gained 36.9%. The company reported its results for the quarter ended September 2022 more than a month ago.

Amkor Technology reported revenues of $2.08 billion in the last reported quarter, representing a year-over-year change of +24%. EPS of $1.24 for the same period compares with $0.74 a year ago.

For the current quarter, Amkor Technology is expected to post earnings of $0.70 per share, indicating a change of -20.5% from the year-ago quarter. The Zacks Consensus Estimate remained unchanged over the last 30 days.

The overall direction and magnitude of estimate revisions translate into a Zacks Rank #3 (Hold) for Amkor Technology. Also, the stock has a VGM Score of A.


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