Advanced Micro (AMD) Up 29.1% Since Last Earnings Report: Can It Continue?

·5 min read

It has been about a month since the last earnings report for Advanced Micro Devices (AMD). Shares have added about 29.1% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Advanced Micro due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

AMD Beats on Q3 Earnings & Revenues, Raises '21 Outlook

Advanced Micro Devices reported third-quarter 2021 non-GAAP earnings of 73 cents per share, which surpassed the Zacks Consensus Estimate by 10.6%. The bottom line soared 78% year over year and 16% sequentially.

Revenues of $4.31 billion outpaced the Zacks Consensus Estimate by 4.7% and surged 54% year over year. On a quarter-over-quarter basis, the top line increased 12%.

Robust performance from the Computing and Graphics, and Enterprise Embedded and Semi-Custom segments drove year-over-year improvement.

AMD raised its 2021 guidance for revenues on the back of strong growth across all businesses.

Top-Line Details

Computing and Graphics segment revenues of $2.4 billion increased 44% year over year and 7% sequentially. The upside can be attributed to higher Ryzen, Radeon and AMD Instinct processor sales.

Growth in client processor average selling price (“ASP”) was driven by a favorable mix of Ryzen processor sales. GPU ASP growth in the reported quarter was driven by high-end Radeon graphics product sales and AMD Instinct data center GPU sales.

AMD partnered with Microsoft to bring powerful, reliable computing to users with Windows 11, powered by Ryzen processors and Radeon graphics.

Ryzen processors witnessed strong customer adoption with Lenovo starting shipments of the Thinkbook and Thinkpad E series business laptops featuring Windows 11. Lenovo also announced Yoga Slim 7 Carbon and Yoga Slim 7 Pro. HP released two AiO devices with Ryzen processors and ASUS unveiled the Ryzen 5000 Series-based Zenbook, Zenbook PRO, ProArtStudioBook and VivoBook.

AMD launched Ryzen 5000 G-Series Desktop Processors with Radeon Graphics and Radeon RX 6600 XT graphics card in the reported quarter. The company also announced the availability of the Radeon PRO W6000X series GPUs for Mac Pro.

Enterprise, Embedded and Semi-Custom segment revenues of $1.90 billion were up 69% year over year and 20% sequentially. The year-over-year increase can be attributed to higher semi-custom product sales and EPYC processor revenues.

EPYC’s adoption rate continued to increase in the reported quarter. Argonne National Labs selected AMD EPYC processors to power a new supercomputer known as Polaris. Alphabet’s Google Cloud announced the public preview of N2D Virtual Machines powered by AMD EPYC7003 Series processors.

The company announced that second-generation AMD EPYC CPUs and AMD Radeon Pro V520 GPUs will power new sizes for Amazon EC2 G4 ad instances.

Cloudflare selected third-generation AMD EPYC processors for its 11th generation servers that power the company’s DNS network.

Operating Details

Non-GAAP gross margin expanded 400 basis points (bps) on a year-over-year basis and 80 bps sequentially, to 48%. The gross margin expansion was primarily driven by a richer mix of sales, particularly due to strong demand for Ryzen, Radeon and EPYC processors.

Non-GAAP operating expenses increased 47% year over year and 14% quarter over quarter to $1.04 billion.

Non-GAAP operating margin of 24% was significantly better than year-ago quarter’s 19%, but was flat sequentially.

Segment wise, Computing and Graphics operating income was $513 million, up 33.6% year over year but down 2.5% sequentially. Enterprise, Embedded and Semi-Custom operating income was $542 million, significantly higher than the year-ago quarter’s figure of $141 million. Sequentially, the figure increased 36.2%.

Balance Sheet & Cash Flow

As of Sep 25, 2021, AMD had cash and cash equivalents (including marketable securities) of $3.61 billion compared with $3.79 billion as of Jun 26, 2021.

As of Sep 25, 2021, total debt (long-term plus short-term) was $313 million, unchanged from the figure as of Jun 26, 2021.

Operating cash flow was reported at $849 million compared with $952 million in second-quarter 2021.

Free cash flow was $764 million in the third quarter compared with $888 million in second-quarter 2021.

AMD repurchased shares worth $750 million in the reported quarter.

Guidance

AMD expects fourth-quarter 2021 revenues to be $4.5 billion (+/-$100 million), which indicates year-over-year growth of 39% and quarter-over-quarter improvement of 4%.

The year-over-year growth is expected to be driven by robust sales across all its businesses. The sequential increase is projected to be led by higher server and semi-custom revenues.

Non-GAAP gross margin is anticipated to be 49.5%.

For 2021, AMD now expects revenues to increase 65% year over year compared with the prior-projected growth of 60%.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates. The consensus estimate has shifted 10.72% due to these changes.

VGM Scores

At this time, Advanced Micro has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with an F. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Advanced Micro has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.


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