Unlike in last quarter’s release Advanced Micro Devices (NASDAQ: AMD) did not disappoint investors when it reported strong revenue, earnings and issued an upbeat forecast for the coming quarter. Yet that was not enough to stop the stock from dropping from ~ $14 down to $12.45 on Feb. 2. The lack of a rally may have created an entry point for investors optimistic about AMD’s outlook this year.
AMD earned $0.08 a share on revenue of $1.48 billion. The product refresh in all markets – Ryzen, EPYC, Polaris, and HEDT through Threadripper – are all paying off. Revenue rose 33.3% Y/Y. This is one of AMD’s strongest quarters in as many years in terms of the EPS surprise. Markets fell last week, putting a drag on AMD stock. Crypcurrency prices plunged daily, sometimes in the double digits. This could be putting pressure on AMD’s stock price. Nvidia (NASDAQ: NVDA) is also facing downward pressure. Although crypto mining is doubling the MSRP price for GPUs, it is also hurting demand for PC gamers. So even if mining activity crumbles and GPU prices fall back to the normal pricing levels, both Nvidia and AMD will benefit. Supply will normalize and demand will be strong enough to keep profit margin health for both firms.
Outlook
AMD raised its revenue forecast by around 20%. The wafer purchases are the key numbers that shows steady doubling in supply for AMD chips. The AMD wafer purchases from Globalfoundries are as follows:
Q1: 152 M U.S. dollar ($)
Q2: 233 M U.S.D.
Q3: 294 M U.S.D.
Q4: 336 M U.S.D.
Assessment
AMD is more likely to end higher at the end of this year than where it is now. It just needs the market to continue marching higher. Profits are minimal at this time but revenue is growing at a brisk pace. As AMD grabs more market share and benefits from scale, which lowers supply costs, profits will grow too. It just takes time.
