Christmas came early for Advanced Micro Devices (AMD). Or perhaps, it is Christmas every day at AMD HQ right now. Not about to be derailed by the trifling matter of a global pandemic, the chipmaker delivered a solid Q2 earnings report, consequentially soaring by 10% in the following session. Adding to the good news, AMD expects an even better Q3.
Rising by 26% year-over-year, AMD surpassed the topline estimate by $70 million, with Q2 revenue clocking in at $1.93 billion. EPS of $0.13 beat the consensus estimate by $0.01.
Segment wise, driven by strong Ryzen processor sales, Computing and Graphics sales were up 45% year-over-year and matched the consensus estimate of $1.37 billion, although weak GPU sales spurred a 5% quarter-over-quarter drop. While Enterprise, Embedded, and Semi-Custom revenue dropped by 4% year-over-year, at $565 million, sales increased by 62% from the prior quarter and beat the Street’s call for $479 million.
That’s all and good, but better still, with the expectation of improving PC sales, continued data-center growth, and a rise in gaming console sales, AMD’s guidance for Q3 handily beat the estimates. AMD expects revenue of between $2.45 to 2.65 billion (up by 42% year-over-year and 32% quarter-over-quarter at the midpoint), significantly above the consensus estimate of $2.3 billion. For the year, AMD raised its guidance for sales growth.
According to Deutsche Bank analyst Ross Seymore, AMD’s business is in rude health.
“Overall,” said the 5-star analyst, “AMD continues to execute superbly in the near-term and deliver a consistent and predictable roadmap of ever-improving products that should be even more attractive to customers’ mid/ long-term plans following INTC’s latest manufacturing misstep… Consequently, we remain impressed by AMD’s execution and see their runway for this success to continue as being clearer/longer post the Intel 7nm issue.”
However, Seymore believes “the majority of this goodness is reflected in the current share price.”
With shares trading at more than 50 times Deutsche Bank’s 2021 EPS estimate, the analyst keeps AMD shares on Hold. Nevertheless, the strong performance is rewarded with a boost to the price target, which rises from $70 to $75. Following AMD’s latest surge, the figure implies downside potential of 4%. (To watch Seymore’s track record, click here)
When it comes to AMD, Seymore’s colleagues remain cautiously optimistic. Based on 13 Buys, 11 Holds, and 1 Sell, AMD has a Moderate Buy consensus rating. However, the average price target of $78.57 suggests a modest upside potential of less than 1% from current levels. (See AMD stock analysis on TipRanks)
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