AMD Q2 Earnings Beat Expectations Significantly, Is AMD A Buy?

AMD (NASDAQ: AMD) reported second quarter earnings on 2n.d of August 2022, with revenue up 70% year-over-year, but shares fell anyway in after-hours trading. The drop in the stock price can be attributed to management’s guidance for the third quarter, where it expects revenue to come in slower than expected. – MarketBeat

Semiconductors have been under pressure from analysts who predicted the industry could soon face a cyclical recession, but those predictions have not come true as chipmakers continue to see strong earnings due to demand unsatisfied Other chipmakers have fared just as well, with the likes of Nvidia (NASDAQ: NVDA ), which has been AMD’s main competitor, also beating analysts’ expectations strongly in the latest quarter despite talk of a slowdown.

Analysts had also feared that chipmakers would see downward price pressure due to a glut of chips in the markets, which would also reduce revenue, and while prices have fallen slightly, they have not revenue significantly, as most of the pricing issues have been borne by resellers, who created tokens to resell at a premium.
“We delivered our eighth consecutive quarter of record revenue based on our strong execution and expanded product portfolio,” said AMD President and CEO Dr. Lisa Su. “Each of our segments grew significantly year over year, led by higher sales of our data center and embedded products. We see continued growth in the back half of the year highlighted by our 5nm product shipments of next generation and supported by our diversified business. model.”

from AMD product The portfolio remains strong as revenue continues to beat expectations

The outlook for semiconductors remains bright, despite talk of a cyclical slowdown. AMD’s results continued to do well as all three segments witnessed strong demand. AMD’s Zen and Zen-2 architecture, which are 50% faster than the previous generation of chips, remain the main revenue generators. The Ryzen processor customer segment grew revenue by 25% for the year to $2.2 billion, and the gaming segment also continued to do well, with revenue up 32% year-over-year as the semi-custom products offset the decline in game graphics revenue. Finally, data center revenue grew 83%, despite talk of a data center bubble by analysts.

The Xilinx acquisition caused gross margins to fall 2%, primarily on depreciation costs, but those costs will be phased out over the next few quarters, which should help margins recover. Operating margins also came under pressure in the quarter, falling 37% on a GAAP basis due to adjustments, but rising 6% on a non-GAAP basis.

The future looks bright as new chips continue to be released over the next few years

AMD has said it will release Zen-4 in late 2022 or 2023. The Zen-4 chip is expected to see a marked improvement over the previous Zen-3 chip, with increased performance and efficiency. It also said that after the launch of Zen-4 it plans to launch the Zen-5 in 2024, which should only strengthen its prospects. The strong product line and demand for chips across industries makes it very likely that revenues will continue to increase at a high growth rate over the next two years. Additionally, the new RDNA 3 architecture is expected to play a major role and should provide more than 50% more performance per watt than the previous generation of chips according to AMD, which should help AMD compete with competitors like Nvidia. The company also plans to release several data center chips, including the Siena and Bergamo processors, which are expected to be the highest performing server processors, and are expected to come out in early 2023.

AMD’s finances and valuation

AMD continued its good form as the company posted operating cash flow of more than $1 billion during the quarter. AMD has projected revenue to be around $6.7 billion in the third quarter, up 55% year-over-year, but with lagging demand and pricing power remaining intact, those numbers could be beaten again the expectations The forward price-to-earnings (P/E) ratio is 22x, making the chipmaker quite cheap. But analysts’ warnings, which so far have been largely wrong, continue to weigh on sentiment, and as a result, stocks have been unable to sustain their gains. Net profit margins on a non-GAAP basis increased to 26%, and at these margin levels, a simple DCF calculation puts the company’s fair value at $150-155, indicating an increase of more of 50%.

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