Sometimes, you can’t win for losing. Advanced Micro Devices, Inc. (AMD) reported Q2 earnings yesterday, beat the expectations, and shares still lost over 10%. The losses came as the company provided Q3 revenue guidance of $1.8 billion, 7.6% lower than the forecast $1.95 billion, and even worse, suggesting FY2019 year-over-year growth in just the mid-single digit percentages.
You can’t say they didn’t try to put a positive spin on it, however. CEO Lisa Su said in the earnings call, “We are executing well to our plans and see a path to significant market share gains for our product portfolio across the PC, gaming, and data-center markets in the coming quarters.”
The Analyst Outlook
Wall Street is taking a mixed view of AMD’s report, although the stock remains a Moderate Buy prospect on the analyst consensus. The overall rating is based on 10 buys and 9 holds given in the past three months. The share price of $30.45 and the average price target of $35.35 suggest an upside of 16% for the stock.
On the bearish side, Credit Suisse’s John Pitzer says to hold AMD, and gives the stock a $30 target. Of the earnings, he says, “Quarterly results are balanced, but share valuation is more fair than cheap.”
Writing from JPMorgan, Harlan Sur agrees, saying, “Q2 results are in-line but annual guidance was lowered on weaker semi-custom sales. We expect AMD’s share gains will begin to moderate next year.” Sur’s $33 price target suggests an 8.3% upside for AMD.
Weighing in for the bulls, Mitch Steves of RBC noted out that reported quarterly revenue of $1.53 billion and EPS of 8 cents just beat the expectations while gross margins remain strong at 40.7%. He points out that “The guidance miss is being driven by the console business and the company is confident in its ability to gain share in PCs along with servers.” Looking forward at the stock’s potential, Steves adds, “The #1 question is around gross margins and after working through the numbers the trajectory appears healthy if we assume that graphics growth is strong in 2H.” He gives AMD a buy rating with a $43 price target, suggesting a robust 41% upside.
Northland Securities analyst Gus Richard also gives AMD a buy rating, despite lower revenue guidance. He says that the console losses should not be surprising: “The current consoles from Microsoft and Sony are at the end of their life cycle, and both have announced new console introductions for next year. This will likely depress demand for these products.” Richard sees the rest of AMD’s product line-up as strong and believes the company will regain gaming market share in 2020. His $36 12-month price target indicates an 18% upside for the stock.
What AMD Reported
Like the analyst reactions, AMD’s Q2 report was decidedly mixed. As noted above, the $1.53 billion revenue and 8 cent EPS were both slightly above expectation. Revenue was down 13% from the year-ago quarter, a negative point countered by the 20% gain from Q1.
The ups and downs in the earnings report reflect current volatility in the semiconductor chip industry. Going back to CEO Lisa Su, her comments touched on that when she referred to US-Chinese trade tensions: “We have stopped shipping some products to a couple of our customers that are on the U.S. entities list and that is a little bit of a headwind into the second half of the year… While we remain cautious given the fluidity of the situation, the impact to date has been limited and offset by growing momentum in other parts of our business.”
At the bottom line, AMD stock remains up 64% year-to-date, and the company has a new line of 7nm Ryzen chips for 2H19. So far, the new processor chips are justifying the bulls, giving better performance than competing products from Intel’s Core line. The new chips have garnered highly positive reviews, and early indications are that they fully back company optimism toward the PC market. Whether this will outweigh the lowered revenue guidance remains to be seen.
