Shares of Advanced Micro Devices, Inc. (NASDAQ:AMD) fell sharply in dramatic fashion, as investors should expect. Gambling on the stock’s movement after the earnings report is like a flip of a coin. This time, AMD’s failure to break above $34 followed with the stock trading in the $28 range recently.
AMD reported computing and graphics revenue of $940, falling 13% Y/Y due to weaker GPU sales. Nvidia (NASDAQ:NVDA) has the edge over AMD because of its RTX Super card release. Radeon 7 is a drag and the latest 7nm GPU cards have a price/performance that does not match up to that of Nvidia cards. Though GPU ASPs fell due to data center GPU sales, enterprise demand could improve. With the stock’s ~28 times forward P/E, valuations are high. Investors may want to wait for better GPU numbers and CPU sales before buying the stock at these levels.
Q3 Outlook
AMD issued a revenue forecast of $1.75 - $1.85 billion when the consensus estimate was $1.94 billion. Gross margin of 43% is above the 41.7% consensus. Full-year 2019 revenue will grow in just the mid-single digits.
The light outlook and disappointing quarter is a setback for investors who expected the stock to soar to the $40+ range. Valuations are holding back the stock. Nvidia is better value but chip stocks will underperform with the escalating U.S./China tariffs.
AMD shares are a “hold” at these levels.
