Advanced Micro (AMD) Up 14.5% Since Last Earnings Report: Can It Continue?

It’s been about a month since Advanced Micro Devices (AMD) last reported earnings. Shares have risen about 14.5% in that time, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Advanced Micro headed for a decline? 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 key drivers.

AMD’s first quarter earnings exceed estimates, revenues grow y/y

Advanced Micro Devices reported first-quarter 2024 non-GAAP earnings of 62 cents per share, missing the Zacks Consensus Estimate by 3.33%. This number increased by 3.3% year-on-year.

Revenues of $5.47 billion surpassed the Zacks Consensus Estimate by 0.99% and grew 2.2% year-over-year. Revenue growth was driven by solid data center and customer revenues, which fully offset the slowdown in the gaming and embedded segments.

Top-shelf details

Data center revenues increased 80.5% year-over-year to $2.34 billion and accounted for 42.7% of total revenues. The revenue line benefited from broad adoption of AMD Instinct MI300X GPUs and double-digit percentage growth in CPU sales. Subsequently, revenues increased by 2%.

In the cloud, server processor revenues increased year-over-year and sequentially as North American hyperscalers expanded their fourth-generation EPYC processor deployments to support internal workloads and public instances.

At the end of the first quarter of 2024, AMD had over 900 public cloud instances, and Amazon, Google and Microsoft were expanding their 4th Gen EPYC processor offerings with new instances and regional deployments.

In the enterprise, sales increased thanks to implementations in large enterprises such as American Airlines, DBS, Emirates Bank, Shell and STMicro. AMD said that Oracle Exadata, its leading database solution, is currently powered exclusively by fourth-generation EPYC processors.

Microsoft, Meta, Oracle and other cloud vendors announced additional MI300X deployments during the reporting quarter. Dell Technologies, HPE, Lenovo, Supermicro and others are also implementing AMD’s MI300X.

Customer segment revenues increased 85.1% year-over-year to $1.37 billion and accounted for 25% of total revenues. Sales of Ryzen desktop processors increased by a double-digit percentage year over year, and sales of Ryzen processors for mobile devices nearly doubled year over year as new Ryzen 80-40 notebook designs grew from Acer, Asus, HP, Lenovo and others.

Gaming segment revenues declined 47.5% year-over-year to $922 million and accounted for 16.8% of total revenues. As a result, revenues decreased by 33%. The year-on-year decline was primarily due to lower revenues from partially non-standard activities. In the Gaming Graphics division, revenues declined year over year and sequentially.

Embedded segment revenues were $846 million, down 45.8% year-over-year and 20% sequentially. The segment accounted for 15.5% of total revenues.

The story continues

Operational details

Non-GAAP gross margin increased 230 basis points (bps) year-over-year to 52.3%, primarily due to lower embedded revenues.

Non-GAAP operating expenses increased 9.7% year-over-year to $1.74 billion.

Non-GAAP operating margin declined 20 basis points year-over-year to 20.7% in the first quarter.

Balance sheet and cash flow

As of March 30, 2024, AMD had cash and cash equivalents (including marketable securities) of $6.04 billion compared to $5.77 billion as of December 30, 2023.

As of March 30, 2024, total debt was $2.47 billion, unchanged from the amount reported as of December 30, 2023.

Operating cash flow was $521 million compared to $381 million in Q4 2023.

Free cash flow was $379 million in Q1 2024 compared to $242 million in Q4 2023.

Conductivity

AMD expects Q2 2024 revenues of $5.7 billion (+/- $300 million). At the midpoint of the revenue range, this represents year-over-year growth of about 6% and subsequent growth of about 4%.

As a result, AMD expects its data center segment revenue to grow by a double-digit percentage, mainly driven by the increase in the number of GPUs in its data centers. Customer segment revenues are expected to increase, while Embedded segment revenues are expected to remain unchanged. Gaming segment revenues are expected to decline by a significant double-digit percentage.

AMD expects year-over-year revenue from its data center and customer segments to grow significantly, driven by a strong product portfolio. Revenues for the Embedded and Gaming segments are expected to decline by a significant double-digit percentage.

AMD expects non-GAAP gross margin to be approximately 53% in the second quarter. Non-GAAP operating costs are expected to be nearly $1.8 billion.

How have estimates changed since then?

It turns out that new estimates have been trending downward over the past month.

VGM results

Currently, Advanced Micro has a weak D growth score, which means the same momentum score. Plotting a somewhat similar path, the stock is rated F on the value side, putting it in the fifth quintile for this investment strategy.

Overall, the company’s overall VGM score is F. If you’re not focused on one strategy, this score should interest you.

Perspectives

Estimates for the stock are trending lower, and the magnitude of these revisions indicates a shift to the downside. Notably, Advanced Micro carries a Zacks Rank #3 (Hold). We expect a linear rate of return on the stock over the next few months.

Industry player performance

Advanced Micro belongs to the Zacks Electronics – Semiconductors industry. Another stock in the same industry, Amkor Technology (AMKR), has gained 7.3% over the past month. More than a month has passed since the company announced its results for the quarter ended March 2024.

Amkor Technology posted revenue of $1.37 billion in its most recently reported quarter, representing a year-over-year change of -7.2%. EPS of $0.24 for the same period compared to $0.18 a year ago.

For the current quarter, Amkor Technology is expected to report earnings per share of $0.23, representing a change of -11.5% from the prior-year quarter. The Zacks Consensus Estimate has remained unchanged over the past 30 days.

Amkor Technology carries a Zacks Rank #1 (Strong Buy) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Rating of A.

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