AMD lowered the bar for earnings, but there is still intrigue in one result

Advanced Micro Devices Inc. has already lowered expectations for its financial performance by a warning, but there is still some confusion in the chipmaker’s earnings report.

It is scheduled to report third-quarter earnings after markets close on Tuesday, and analysts will be watching the company’s data center business closely for signs of a further slowdown. Wall Street is focusing on data center and enterprise spending, especially as the sector continues to struggle after Facebook parent Meta Platforms Inc.
Last week it released a big forecast for capital, even as profits flowed.

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In a note titled “PC weakness well known, but DC size unknown,” Susquehanna financial analyst Christopher Rolland said he is cautious that “both enterprise and hyperscale capital will continue to slow due to macro growth concerns.” does.”

“However, we think that AMD continues to gain market share because Intel has accepted the ‘competitive pressures’,” Rolland said.

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AMD will need to keep up with Intel in the data center market if it wants to overcome a sharp decline in sales of chips used for personal computers. About a month ago, AMD cut its revenue forecast by about $1 billion to account for a 40 percent drop in PC sales amid reports of the worst-ever decline in PC shipments.

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AMD after competitor Intel Corp. INTC reports,
allowing investors to get a clearer idea of ​​what the macro concern is versus what is specific to a single chip maker. While AMD is already reporting diving PC sales, it is also currently facing other issues related to chip makers – fear of recession, inflation, the impact of China’s COVID-19 restrictions and the war in Ukraine – the saving grace, or the last shoe. download, will be data center sales.

Intel’s earnings reaction: ‘Shock and awe’ price rockets Intel stock up 10% for best day since March 2020.

Intel’s data center sales fell 27% to $4.2 billion from a year earlier, and the group was unprofitable for the quarter. Analysts surveyed by FactSet expected AMD’s $1.61 billion in data center sales after the break.

What to expect

Profit: AMD is expected to post earnings of $1.02 a share on average, according to a FactSet poll of 30 analysts, but several analysts were reluctant to lower estimates following the warning. Estimize, a software platform that provides estimates to hedge-fund managers, brokerages, buy-side analysts and others, is calling for 90 cents a share.

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Arrival: According to 32 analysts surveyed by FactSet, AMD, on average, is expected to post record revenue of $5.69 billion, up from a year ago. AMD executives guided for $5.6 billion, down from the previous $6.5 billion forecast of $6.9 billion. Estimize expects revenue of $5.96 billion.

Stock Movement: While AMD’s earnings and sales have both topped Wall Street estimates in each of the past nine quarterly reports, shares closed higher only the next day in half of those reports.

AMD shares are down 57% year to date. In comparison, the PHLX Semiconductor SOX Index,
is down about 38%, while the S&P 500 SPX index,
Down 18%, and the tech-heavy Nasdaq Composite Index COMP,
29% down.

In the September quarter, AMD shares fell 17%, as the SOX index fell 9.8%, the S&P 500 fell 5.3%, and the Nasdaq fell 4.1%.

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What do the analysts say?

Following AMD’s cut, Bernstein analyst Stacy Rasgon decided to view it as a possible clearing event.

“While we acknowledge that this cut is disappointing and larger than we anticipated, it may represent a clearing event at least for PCs (the data center may remain the sticking point; it’s good in Q3 it seems but we suspect that investors will still be a bit nervous. until we get more clarity on Q4), “Rasgon said.

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Susquehanna’s Rolland, who has a positive rating on AMD and an $80 price target, predicts that AMD will post record high share gains in desktops and laptops. Rolland’s model shows that AMD holds 29.3% of the desktop market and 22.8% of the laptop market.

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Of the 43 analysts surveyed by FactSet, 30 have buy ratings, and 13 have buy ratings on AMD, with an average price target of $93.68, down from $125.56 a quarter ago.


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