AMD: Game-Changing Rumors Fuel AI Comeback

Seekingalpha2023-05-06

SummaryAdvanced Micro Devices' Q1 earnings were recently reported and sent AMD stock spiraling downward.The very next day, a report came out citing Microsoft Corporation as working with and funding ...

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MIe
2023-05-08
MIe
Amd upside with Microsoft +
Mr Mooney
2023-05-06
Mr Mooney
Time to buy more...
不要赌不输就是赢
2023-05-06
不要赌不输就是赢
@MatthewLeez

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This comes as AMD stock plunged following its just-reported Q1 earnings. The next day the stock rallied as a rumor arose that the company would be funded by Microsoft Corporation (MSFT) who was reportedly helping to pay for the semiconductor company's push into processors used for artificial intelligence, or AI workloads. AMD stock surged on that news.Then, just today, Microsoft denied those reports. While AI will be a game-changer, we expect more rumors to abound in the space as AI drives the next wave of demand in the space this decade. For now, we need to focus on performance, which near term will be weak, but we see a ramp-up in 2024 as likely. For now, demand has cooled and pricing has not been largely in favor of semiconductors.Performance was mixed in Q1The AMD Q1 earnings were mixed, at best. The headline results, however, were above consensus. We think that operations are approaching a trough, but we are not there quite yet. In Q1, revenue was $5.35 billion and actually decreased 9.2% year-over-year. There was mixed performance in most segments from last year.One item we watch closely is gross margins, and these are being pinched. AMD's GAAP gross margins fell to 44%, a decline of 400 basis points year-over-year. They ticked up from Q4's 43%, and up from Q3 2022's 42%. So, we are seeing progress here. Adjusted gross margins were, however, down to 50%. This was down from the sequential quarter's 51%, and down from 53% a year ago. Margin pressure persists, but we believe margins have bottomed out.Operating income decliningAs the revenues and adjusted margins were down from last year, AMD saw gross profit pressure, as one might expect, but operating expenses were high and led to operating income declines. This is a problem. Revenues are falling but operating expenses are up. While this is due to investments being made and some rising costs from labor, etc., both metrics are moving in the wrong direction where the bottom line is concerned. With that said, we see demand accelerating toward the end of the year into next year, barring a severe recession.In Q1, AMD's operating income, as adjusted, fell and was $1.1 billion, or down 40% from $1.84 billion a year ago. In our opinion, while it may be only a few quarters, AMD needs to focus more on controlling operating expenses in an environment where sales are declining. AMD's net income fell to under $1 billion, hitting $970 million from a year ago, Earnings per share fell, however, to $0.69 vs. $0.92 last year, but did beat by $0.02.Segment commentaryPC demand remains low, while data center demand is strong and the embedded segment was up nicely year-over-year. It may take a few more quarters before we see meaningfully increased demand, and certainly not until we emerge from a recession, assuming one occurs. In Q1, the client segment revenue fell 65% year-over-year to $0.74 billion. Revenue was down from Q4's $0.9 billion as well. Gaming segment revenue was $1.76 billion, down 6.2% year-over-year as well, but rose from Q1. Once again, Xilinx helped the embedded segment, and revenue here was a strong $1.56 billion, tripling from last year and up about $160 million from Q4. Finally, data center revenue was flat from last year and down about 24% from Q4, hitting $1.3 billion.Looking ahead, we believe gaming and data centers will lead the way, while embedded is likely to see roughly flat performance. Data center was a bit weaker than we expect this quarter. We will closely watch this segment going forward.Healthy balance sheetThe AMD balance sheet is healthy. At the end of Q1, cash was $5.9 billion. Cash from operations was $486 million compared to $995 million a year ago, while free cash flow was $328 million compared to $924 million a year ago. Free cash flow was also down from Q4's $443 million. Long-term debt stood at $2.46 billion, so net cash is a very strong $3.5 billion.Rumor millThe timing of the report that AMD was working with Microsoft was awfully convenient, as it erased the losses largely seen following the earnings report. It certainly helped drive some short covering and saved investors some near-term losses. Buy the rumor, sell the news is usually a reliable play.We encourage readers to exercise caution when there are unconfirmed reports of major developments as were announced. A partnership with Microsoft and AMD would have been a big game-changer. However, that was squashed today, as Microsoft denied the validity of this news. However, the market has not sold off AMD stock on this news, in part due to a very strong market trading day following Apple Inc.'s (AAPL) Q1 earnings results. We still believe that AMD is a long-term buy, but we would much prefer new money to enter in the $70s.OutlookWe see ongoing weakness for PCs and client revenue. We think data center leads the way, along with gaming and then embedded revenue. We really are looking for more on cost-cutting efforts and their impact on margin and operating income. We expect $2.5 billion in share repurchases in 2023, as the $8 billion that was authorized in early 2022 has plenty remaining.For Q2, which we believe may be a trough in performance, AMD guided for revenue to be approximately $5.0-$5.6 billion, while adjusted gross margin will continue to be weak, around 50%.Our view for the year on revenues is $21.0-$25.0 billion. We see revenue strength ramping later this year, and into 2024. Assuming at least a 50% margin, and even roughly comparable capex and opex, we see EPS of $2.80-$3.20 for 2023 as likely. Assuming the midpoint, AMD shares are trading at about 30X FWD earnings. AMD stock is not cheap, but on a pullback to the $70s, we would encourage new money to re-enter.Take-homeAdvanced Micro Devices, Inc. stock is well up off of 52-week lows. A partnership with Microsoft to develop new processors was a game-changing piece of news, but the rumor was quickly dispelled. As such, it is back to focusing on the company's current performance and near-term expectations.We love the AMD repurchases here, and the management team as well. We see data centers remaining strong as well as embedded, but PC demand will struggle this year. We still want to see more work done on expenses, while AMD margins are likely to hit their trough if they have not already in Q2.","kind":"highlight","is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[{"id":9947428333,"gmtCreate":1683522917322,"gmtModify":1683522922346,"author":{"id":"3577182936341023","authorId":"3577182936341023","name":"MIe","avatar":"https://static.laohu8.com/default-avatar.jpg","vip":1,"hat":"https://static.tigerbbs.com/f84d87792f02cf78e80ee34979fd31e5","crmLevel":6,"crmLevelSwitch":0,"idStr":"3577182936341023","authorIdStr":"3577182936341023"},"htmlText":"Amd upside with Microsoft +","listText":"Amd upside with Microsoft +","text":"Amd upside with Microsoft +","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":0,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/9947428333","repostId":2333775438,"repostType":4,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"},{"id":9947575042,"gmtCreate":1683362904986,"gmtModify":1683362908789,"author":{"id":"3583044537429562","authorId":"3583044537429562","name":"Mr Mooney","avatar":"https://community-static.tradeup.com/news/6836340f20d36afa666f6d8d4b0a929d","vip":1,"crmLevel":5,"crmLevelSwitch":0,"idStr":"3583044537429562","authorIdStr":"3583044537429562"},"htmlText":"Time&nbsp; to buy more...","listText":"Time&nbsp; to buy more...","text":"Time to buy more...","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":3,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/9947575042","repostId":2333775438,"repostType":2,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"},{"id":9947576382,"gmtCreate":1683358437446,"gmtModify":1683358441791,"author":{"id":"4138794444226042","authorId":"4138794444226042","name":"不要赌不输就是赢","avatar":"https://community-static.tradeup.com/news/483894a80e823b16bc7cdf468d577a49","vip":1,"crmLevel":5,"crmLevelSwitch":0,"idStr":"4138794444226042","authorIdStr":"4138794444226042"},"htmlText":"<a href=\"https://ttm.financial/U/3584534261743607\">@MatthewLeez&nbsp;</a>","listText":"<a href=\"https://ttm.financial/U/3584534261743607\">@MatthewLeez&nbsp;</a>","text":"@MatthewLeez","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":2,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/9947576382","repostId":2333775438,"repostType":4,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"}],"isCommentEnd":false,"newsSizeData":{"likeSize":33,"commentSize":3,"repostSize":3,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.29.3","shortVersion":"4.29.3","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2333775438"}