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Advanced Micro Devices Earnings Preview: Here’s What to Look For

Advanced Micro Devices (NASDAQ: AMD) is scheduled to report second-quarter 2021 earnings on July 27 after the market closes. Over the past year, shares of the chip maker have rallied more than 33% and are currently trading at over $92. A strong set of numbers could continue to take shares on an upward trajectory, so let’s take a closer look at what analysts on the Street are expecting.

AMD Earnings Preview

AMD is expected to report EPS of $0.54 on revenues of $3.62 billion, while the company guided for revenues of $3.5 billion to $3.7 billion, which would represent year-over-year growth of 86%.

Meanwhile, the Earnings Whisper number, or the Street’s unofficial view on earnings, stands at $0.57 per share.

Prior Period Results

In the previous quarter, the company reported adjusted earnings of $0.52, which almost more than doubled from the same quarter last year and came in well ahead of analysts’ expectations of $0.44 per share. In addition, revenue jumped 93% to $3.45 billion and surpassed the consensus estimate of $3.21 billion. (See Advanced Micro Devices stock charts on TipRanks)

Factors to Watch For

AMD specializes in the production of the world’s most powerful processors and power devices, from supercomputers to game console products. The company works through two units, its Computing and Graphics segment, and its Enterprise, Embedded, and Semi-Custom segment. Both segments performed stupendously in the first quarter, and the company delivered the sixth straight quarter of double-digit percentage year-over-year revenue growth. The trend is likely to have continued in the second quarter on the company’s superior product portfolio, strong execution, and solid market demand.

Notably, the gaming and data center market platforms have witnessed strong demand due to the pandemic-induced work-from-home and online-learning trend. The increasing adaptation of cloud-based solutions has strengthened the data-center business. Therefore, sales of processors, led by both its Ryzen and Radeon processors, might have supported the company’s revenues in the to-be-reported quarter.

Furthermore, AMD EPYC processors and AMD Instinct accelerators have gained momentum, which is expected to have continued in the second quarter. The recent launch of the AMD EPYC 7003 Series processor, which makes AMD a top-performer in the High Performance Computing (HPC) industry, is likely to act as a catalyst.

In graphics, continued momentum in revenue is expected, backed by the company’s high-end new AMD Radeon RX 6000M Series Mobile Graphics, which includes Radeon RX 6800M – the fastest AMD Radeon GPU (graphics processing unit) for laptops. For the coming quarters as well, Radeon 6000 Series GPU are anticipated to generate sales significantly on ramp-up production.

Strong growth recorded in both semi-custom and EPYC processor sales are likely to have continued in the to-be-reported quarter, on increasing adoption. Management expects “semi-custom sales to remain strong throughout 2021, driven by significant demand for the latest generation Sony and Microsoft consoles.”

Besides for that, AMD’s revenues could have potentially risen due to encouraging demand for PCs, particularly in the ultrathin, gaming, and commercial segments. Additionally, higher demand for notebooks should aid revenues.

During the last quarter’s call, management said, “We expect continued growth in 2021 as the number of notebook platforms powered by our new processors is on track to increase by 50% compared to our prior generation.”

Furthermore, the rising number of clients might have aided the to-be-reported quarter’s profitability. Top cloud players, including Hewlett Packard Enterprise (HPE), Amazon Web Services (AWS) – a unit of Amazon (AMZN), Alphabet’s (GOOGL) Google Cloud, and Microsoft (MSFT) Azure are using the company’s EPYC processors.

Additionally, for the enterprise, management stated during the first-quarter earnings call, “Cisco, Dell, HP Enterprise, Lenovo, and Supermicro all announced plans to expand their AMD-based offerings with more than 100 new third-gen EPYC processor-powered server platforms that deliver superior performance and total cost of ownership.”

Recent Developments

During the quarter, AMD and Xilinx, Inc. (XLNX) received their respective stockholders’ approval for the deal through which Xilinx will be acquired by AMD. The combined entity will have the expertise to capitalize on opportunities generated from the most important growth segments in the industry, including data centers, gaming, PCs, communications, automotive, industrial, aerospace, and defense, the company said.

AMD CEO Dr. Lisa Su commented, “For several years, AMD has successfully executed our long-term growth strategy and deepened the company’s partnerships to drive high performance computing leadership. The acquisition of Xilinx marks the next leg in our journey to make AMD the strategic partner of choice for the largest and most important technology companies in the world as an industry leader with the vision, talent and scale to support their future innovation.”

The deal, which is likely to close by the end of this year, awaits certain regulatory approvals and other closing conditions.

Analyst Recommendations

Recently, Cowen & Co. analyst Matt Ramsay reiterated a Buy rating and a price target of $120 (30.2% upside potential) on the stock.

Ramsay expects the company to experience momentum in both enterprise (server & PC) and cloud, thanks to rising customer engagement.

The analyst stated, “Even after raising 2021 growth guidance to 50% from 37% on the 1Q21 earnings call, we see upside to numbers from continued PC chip sales momentum and upside to both hyper-scale and enterprise server shipments helped in 4Q/1Q by Intel’s latest Sapphire Rapids delay.”

On July 23, Rosenblatt Securities analyst Hans Mosesmann maintained a Buy rating and a price target of $135 (46.5% upside potential) on the stock.

For Q2, Mosesmann expects “sales to be better than both our/consensus estimates of a mid-single-digit q/q increase and EPS to come in above both our/consensus estimates of $0.54/$0.53.”

Furthermore, the analyst foresees “revenues during the quarter being driven by strength across the board in key product areas and, in particular, data center and gaming (Xbox & PlayStation).”

For AMD’s segments, “mid-single-digit q/q growth in Computing & Graphics sales (~61% of revenue) and low-single-digit growth q/q in Enterprise, Embedded, and Semi-Customs (~39%),” are expected.

The rest of the Street is cautiously optimistic about the stock with a Moderate Buy consensus rating. That’s based on 13 Buys and 6 Holds. The average AMD price target of $109.73 implies 19.1% upside potential from current levels.

AMD scores an 8 of 10 from TipRanks’ Smart Score rating system, indicating that the stock has strong potential to outperform market expectations.