AMD‘s (NASDAQ: AMD) inventory sank almost 3% on Jan. 31 after the chipmaker posted its fourth-quarter earnings report. Income rose 10% 12 months over 12 months to $6.17 billion and exceeded analysts’ estimates by $60 million. Adjusted earnings grew 12% to $0.77 per share and matched the consensus forecast.
AMD’s progress charges seemed wholesome, however loads of optimism had already been baked into its shares forward of that report. Even after its newest post-earnings dip, its inventory has nonetheless rallied greater than 130% over the previous 12 months. So will AMD’s inventory hold charging larger over the following 12 months, or will it underperform most of its business friends?
One other quarter of accelerating progress
AMD’s income progress accelerated for the second consecutive quarter, its adjusted gross and working margins held regular from a 12 months in the past, and its adjusted EPS grew by double digits once more.
|
Metric |
This autumn 2022 |
Q1 2023 |
Q2 2023 |
Q3 2023 |
This autumn 2023 |
|---|---|---|---|---|---|
|
Income Progress (YOY) |
16% |
(9%) |
(18%) |
4% |
10% |
|
Adjusted Gross Margin |
51% |
50% |
50% |
51% |
51% |
|
Adjusted Working Margin |
23% |
21% |
20% |
22% |
23% |
|
Adjusted EPS Progress (YOY) |
(25%) |
(47%) |
(45%) |
21% |
12% |
Information supply: AMD. YOY = Yr-over-year.
AMD suffered a slowdown within the first half of 2023 because the PC market cooled off following the pandemic and curbed its gross sales of x86 CPUs. It additionally offered fewer discrete GPUs for PC gaming and customized APUs for gaming consoles. It partly offset that deceleration with the expansion of its knowledge middle enterprise — which benefited from the growth of the bogus intelligence (AI) market — in addition to the growth of its embedded chip unit by its acquisition of the programmable chipmaker Xilinx.
For the total 12 months, AMD’s income and adjusted EPS fell 4% and 24%, respectively. That slowdown was disappointing, however AMD fared higher than Intel (NASDAQ: INTC), which posted a 4% income decline and a 37% drop in its adjusted EPS.
Its knowledge middle and PC companies are rising
Through the fourth quarter, AMD generated 37% of its income from its knowledge middle division, which sells its Epyc CPUs for servers and Intuition GPUs for accelerating AI duties. The section’s income rose 38% 12 months over 12 months because it steadily carved out a distinct segment in opposition to Intel’s CPUs and Nvidia‘s (NASDAQ: NVDA) GPUs within the crowded knowledge middle market.
For the total 12 months, its knowledge middle income rose 7%, and AMD expects to promote $3.5 billion of its new MI300-series AI GPUs (in comparison with its earlier estimate of $2 billion) in 2024. That may be equal to greater than half of its complete knowledge middle income in 2023. It might additionally spell hassle for Nvidia, which has reportedly been asking a few of its prospects to attend as much as a 12 months for its newest knowledge middle GPUs amid the AI market’s feverish progress.
One other 24% of AMD’s fourth-quarter income got here from its shopper section, which sells its Ryzen CPUs for PCs. The section’s income grew 62% 12 months over 12 months for the quarter however nonetheless fell 25% for the total 12 months because the PC market cooled off.
Its strengths are offsetting its weaknesses
AMD’s gaming section, which accounted for 23% of its income, remained a weak hyperlink with a 17% decline within the fourth quarter and a 9% drop for the total 12 months. Its sluggish gross sales of gaming console APUs offset its stronger gross sales of Radeon GPUs for PCs.
The embedded section, which introduced in 18% of AMD’s income, additionally posted a 24% year-over-year decline as its prospects lowered their inventories of programmable chips. It nonetheless grew 17% for the 12 months, however that progress was largely inorganic and fueled by its buy of Xilinx in Feb. 2022.
Merely put, the accelerating gross sales of AMD’s knowledge middle chips and the stabilization of its PC chips are nonetheless offsetting its softer gross sales of gaming console and programmable chips. AMD additionally would not manufacture its personal chips like Intel, so it constantly generates larger gross and working margins regardless of promoting most of its chips at decrease costs. {Hardware} manufacturing is an costly enterprise to run.
However its steerage was disappointing and its inventory is not low-cost
AMD’s fourth-quarter outcomes seemed stable, but it surely expects its income to remain almost flat 12 months over 12 months within the first quarter of 2024. Analysts had been anticipating 7% progress.
It attributed that slowdown to the weak point of its shopper, gaming, and embedded segments. Identical to Intel — which additionally lately disillusioned traders with its grim first-quarter outlook — AMD expects the PC market to stay wobbly within the first half of 2024 earlier than stabilizing within the second half of the 12 months as corporations launch new AI-optimized PCs.
That steerage casts doubts on AMD’s capacity to satisfy analysts’ expectations for 18% income progress and 47% adjusted EPS progress in 2024. Subsequently, AMD’s inventory is perhaps too costly at 44 instances ahead earnings — particularly when Intel already appears overvalued at 31 instances ahead earnings. AMD’s long-term future nonetheless seems to be vibrant, however I think its uneven progress and excessive valuations will cap its good points and trigger it to underperform lots of its cheaper business friends over the following 12 months.
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Leo Solar has no place in any of the shares talked about. The Motley Idiot has positions in and recommends Superior Micro Gadgets and Nvidia. The Motley Idiot recommends Intel and recommends the next choices: lengthy January 2023 $57.50 calls on Intel, lengthy January 2025 $45 calls on Intel, and brief February 2024 $47 calls on Intel. The Motley Idiot has a disclosure coverage.
The place Will AMD Inventory Be in 1 Yr? was initially revealed by The Motley Idiot
