Investing 02-11-2022 06:19 18 Views

How to play AMD shares after a weak Q3?

Advanced Micro Devices Inc (NASDAQ: AMD) is trading up after the bell even though it disappointed both in terms of quarterly results as well as the future outlook.

Analyst reacts to AMD’s Q3 earnings

Shares are up for several reasons. To begin with, the semiconductor behemoth had already trimmed outlook last month (read more) to reflect the historic global decline in PC shipments.

So, investors were focused more on “data centre” that AMD still expects will grow in the fourth quarter, not just on a year-over-year basis but also sequentially. On CNBC’s “Closing Bell: Overtime”, Bernstein’s Stacy Rasgon said:

I think that’s what people want. They want to know that any weakness that’s going on is strictly PC related because we all know that market is not great right now. Data centre seems to be holding in.

More importantly, the implied strength in data centre was particularly a pleasant surprise after Intel, just a week ago, painted a rather grim picture of that business and said it will continue to struggle moving forward.

Should you buy AMD shares?

Rasgon continues to recommend buying AMD shares. His price objective of $95 represents more than a 50% upside from here.

The stock is pretty attractive as long as you still believe in that longer term growth rate, which I think is still there. The issues that AMD has are not structural. They’re taking share, their product portfolio is really good.

His thesis, essentially, is that “data centre” is already keeping resilient and the PC market will eventually recover.

AMD Q3 financial highlights

Net income printed at $66 million versus last year’s $923 million Per-share earnings fell significantly from 75 cents to 4 cents only Adjusted EPS was 57 cents as per the earnings press release Revenue went up 29% on a year-over-year basis to $5.57 billion FactSet consensus was 69 cents a share on $5.65 billion in revenue

What else was noteworthy?

A 600 basis points hit to gross margin this quarter was related to acquisitions (Xilinx and Pensando).

Data centre sales were only slightly below estimates but up 45% on a year-over-year basis. “Gaming” and “Embedded” sales were also up versus last year and roughly in line with Street expectations.

Lastly, “Client” or PC sales, as expected, were down 40% – about $170 million shy of analysts’ forecasts.

AMD’s future guidance

For the full year, Advanced Micro Devices Inc expects data centre and embedded to drive a 43% annualised growth in revenue to $23.5 billion. It’s projecting gross margin to stand at 52% in 2022.

The Nasdaq-listed firm forecasts $5.50 billion in revenue in the current financial quarter. Experts had called for $5.95 billion in Q4 and $24.16 billion for the year.

Versus the start of the year, AMD shares are down nearly 60%.

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