Advanced Micro Devices (NASDAQ:AMD) will report Q2 financials after the market closes on Tuesday, August 1. Wall Street analysts are upbeat about AMD stock ahead of the Q2 print. The chip company is one of the key beneficiaries of the evolution of AI (Artificial Intelligence). In addition, analysts believe that inventory-led issues will subside in 2H (the second half of 2023), driving its financials and stock price.
AMD stock has risen over 74% year-to-date, outperforming the broader markets by a wide margin. While analysts remain upbeat, their earnings estimate suggests a significant year-over-year decline. Let’s delve into analysts’ estimates for Q2.
Here’s What Consensus Estimates Reveal
Wall Street analysts expect AMD to post revenues of $5.32 billion in Q2, roughly in line with management’s guidance range and approximately flat year-over-year. However, sales are expected to decline on a year-over-year basis, reflecting weakness across the Client (primarily including CPUs) and Gaming segments.
Further, management expects the Embedded segment (which includes embedded CPUs and GPUs), which registered massive growth in Q1, to see a modest sequential decline.
Given the lower sales projection, analysts expect AMD’s bottom line to register a significant year-over-year decline. Wall Street analysts expect AMD to post earnings of $0.57 a share in Q2, down from $1.05 in the prior-year quarter. The consensus estimate also compares unfavorably with the previous quarter’s earnings of $0.60 per share.
Though analysts expect the company’s top and bottom lines to decline on a year-over-year basis, the AI opportunity and expected reacceleration in its revenue in 2H keep analysts optimistic about AMD stock.
What is the Future of AMD Stock?
Ahead of the Q2 print, Rosenblatt Securities analyst Hans Mosesmann reiterated his Buy recommendation on AMD stock on July 26. The analyst sees Q2 as a “transitional quarter” that will lead into 2H, which has “multiple growth drivers,” including the recovery in CPUs and “early ramps in the MI300 GPU compute series,” its GPU for AI.
Along with Mosesmann, Wolfe Research analyst Chris Caso and Wells Fargo analyst Aaron Rakers also maintained a bullish outlook on AMD stock ahead of Q2 earnings. Caso initiated coverage of AMD stock with Buy on July 19. Further, Rakers reiterated a Buy recommendation on AMD stock on July 18. Both analysts see a solid upside in AMD stock due to the MI300X GPU ramp-up.
Overall, AMD stock has 24 Buy and seven Hold recommendations for a Strong Buy consensus rating. Even though AMD stock has risen quite a lot, analysts’ average price target of $136.36 implies 19.2% upside potential from current levels.
Insights from Options Trading Activity
The options traders are pricing in a 7.74% move on earnings, which is greater than the previous quarter’s earnings-related move of -9.22% and the average 2.85% move in the last eight quarters.