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Advanced Micro (AMD) Up 44.8% Since Last Earnings Report: Can It Continue?

It has been about a month since the last earnings report for Advanced Micro Devices (AMD). Shares have added about 44.8% 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 its most recent earnings report in order to get a better handle on the important catalysts.

AMD Q1 Earnings Beat, Revenues Aided by Strong Embedded Growth

AMD reported first-quarter 2023 non-GAAP earnings of 60 cents per share, beating the Zacks Consensus Estimate by 7.1% but declining 46.9% year over year.

Revenues of $5.35 billion beat the Zacks Consensus Estimate by 0.91% but decreased 9.1% year over year.

The Embedded segment includes AMD and Xilinx embedded products. Revenues were $1.56 billion compared with the year-ago quarter’s $595 million. The segment accounted for 29.2% of total revenues.

AMD benefited from strong demand for its products in industrial, vision and health care, test and emulation, communications, aerospace and defense, and automotive end-markets.

Quarter Details

The company announced new reporting segments — Data Center, Client, Gaming and Embedded — beginning second-quarter 2022.

Data Center comprises server CPUs, data center GPUs, Pensando and Xilinx data center products. Revenues inched up 0.2% year over year to $1.295 billion and accounted for 24.2% of total revenues.

Higher cloud sales were offset by lower enterprise sales. EPYC CPU sales grew by a strong double-digit percentage year over year but declined sequentially due to higher inventory levels of several MDC customers.

In the reported quarter, AMD launched 28 new instances, including multiple confidential computing offerings from Microsoft Azure, Google Cloud and Oracle Cloud. It is currently powering 640 available public instances.

The Client segment includes desktop and notebook PC processors and chipsets. Revenues declined 65.2% year over year to $739 million and accounted for 13.8% of total revenues.

The Gaming segment includes discrete graphics processors and semi-custom game console products. Revenues decreased 6.3% year over year to $1.78 billion and accounted for 32.8% of total revenues.

Non-GAAP gross margin contracted 270 basis points on a year-over-year basis to 50%. Non-GAAP operating expenses increased 17.9% year over year to $1.59 billion. Non-GAAP operating margin was 20.5% compared with 31.2% in the year-ago quarter.

Balance Sheet & Cash Flow

As of Mar 31, 2023, AMD had cash and cash equivalents (including marketable securities) of $5.94 billion compared with $5.86 billion as of Dec 31, 2022.

As of Mar 31, 2023, total debt was $2.47 billion, unchanged from the figure reported as of Dec 31, 2022.

Operating cash flow was reported at $486 million compared with $567 million in fourth-quarter 2022.

Free cash flow was $328 million in the first quarter of 2023 compared with $443 million in the fourth quarter of 2022.

Guidance

AMD expects second-quarter 2023 revenues to be $5.3 billion (+/-$300 million), which indicates a year-over-year decline of 19% and approximately flat sequentially.

It expects to witness growth in Embedded segments, partially offset by a decline in the Client, Gaming and Data Center segments.

Sequentially, Embedded and Gaming segment revenues are expected to decrease while Client and Data Center segment revenues are expected to grow.

Non-GAAP gross margin is anticipated to be roughly 50%. Non-GAAP operating expenses are expected to be approximately $1.6 billion.

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How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates revision.

The consensus estimate has shifted -13.32% due to these changes.

VGM Scores

Currently, Advanced Micro has a subpar Growth Score of D, though it is lagging a bit on the Momentum Score front with an F. Following the exact same course, the stock was allocated a grade of F on the value side, putting it in the fifth quintile for this investment strategy.

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

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Advanced Micro has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

Performance of an Industry Player

Advanced Micro is part of the Zacks Electronics - Semiconductors industry. Over the past month, Amkor Technology (AMKR), a stock from the same industry, has gained 17.6%. The company reported its results for the quarter ended March 2023 more than a month ago.

Amkor Technology reported revenues of $1.47 billion in the last reported quarter, representing a year-over-year change of -7.9%. EPS of $0.18 for the same period compares with $0.69 a year ago.

For the current quarter, Amkor Technology is expected to post earnings of $0.22 per share, indicating a change of -56.9% from the year-ago quarter. The Zacks Consensus Estimate has changed +10% over the last 30 days.

Amkor Technology has a Zacks Rank #4 (Sell) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of B.

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