AMD Earnings Preview- The pressure to produce a 'beat and raise' quarter is on
AInvestTuesday, Jul 30, 2024 12:01 pm ET
2min read
AMD --

Advanced Micro Devices (AMD) is set to report its Q2 2024 earnings on Tuesday, July 30th, after the market closes. Analysts are expecting EPS of $0.68 and revenue of $5.72 billion. This guidance aligns closely with AMD's projected revenue range of $5.4 billion to $6.0 billion, indicating modest year-over-year and quarter-over-quarter growth. Notably, there have been mixed revisions from analysts over the past three months, with 19 upward and 24 downward adjustments for Q2 revenue.

AMD's stock has experienced significant volatility, falling to its lowest levels since early January. The recent delay in launching the Ryzen 9000 series chips due to quality control issues has contributed to this downward pressure. Despite these challenges, AMD remains confident that the delay will only be one to two weeks, with the Ryzen 7 9700X and Ryzen 5 9600X now scheduled for August 8th, and the Ryzen 9 9950X and Ryzen 9 9900X for August 15th.

AMD shares are in a descending triangle heading into the report. The stock fell below the 200-day moving average ($153). The stock is hovering above the YTD low of $133. A failure to provide a strong beat and raise should put further pressure on the stock and bring the $110 area into focus. Investors would like to see the stock recover the $141 level to break the downward momentum.

Price action has been tumultuous, with AMD shares tumbling nearly 40% since March. Investors will be keenly watching the upcoming earnings report for any signs of stabilization or recovery. Key areas to monitor include the performance of AMD's Data Center segment, particularly the MI300 GPU series, and the impact of delayed product launches on near-term revenue and earnings.

Stifel and TDCowen have provided optimistic outlooks for AMD, highlighting strong growth potential in the Data Center and AI segments. Stifel expects Q2 results to be in-line to slightly above consensus, driven by continued traction in the MI300 series and improvements in enterprise server CPU sales. TDCowen, meanwhile, has raised its price target for AMD to $210 from $200, citing strong medium-term growth drivers and favorable PC seasonality.

Oppenheimer has a more cautious stance, predicting in-line results for Q2 with limited upside potential. They note that while the Data Center and Client segments are expected to grow, weak performance in Gaming and Embedded could offset these gains. Despite these concerns, OPCO believes that the long-term prospects for AMD's AI growth story remain intact, though diluted by slower growth in other segments.

On July 12, AMD saw a positive market reaction, with shares rising 2%, following its $665 million cash acquisition of Silo AI, Europe's largest private AI lab. The acquisition positions AMD to strengthen its AI business and compete more effectively with NVIDIA, the current leader in AI infrastructure. Silo AI, known for developing tailored AI models for clients like Unilever and Intel, will help AMD integrate AI into its products, potentially leading to future performance gains. As the race to dominate the AI market intensifies, AMD's strategic acquisition highlights its commitment to gaining a competitive edge and capturing a share of the lucrative AI market.

Advanced Micro Devices reported in-line Q1 results and provided Q2 guidance that failed to excite investors, resulting in a 6% drop in share price to three-month lows. Despite positive highlights such as accelerated enterprise adoption of EPYC processors and an increase in FY24 data center GPU revenue guidance, the underwhelming near-term outlook left investors wanting more. AMD's bottom line met analyst expectations for the second consecutive quarter with a 3.3% year-over-year increase to $0.62 per share, and revenue grew by 2.2% to $5.47 billion, aligning with forecasts.

The Gaming and Embedded segments were notably weak, declining by 48% and 46% year-over-year, respectively, due to ongoing customer inventory rebalancing. Conversely, the Data Center segment saw an 80% surge in revenue to a record $2.3 billion, driven by strong demand for AMD's MI300X GPU and enterprise adoption of server CPUs. The Client segment also performed well, with an 85% year-over-year increase to $1.4 billion, reflecting robust demand for Ryzen processors. While AMD raised its FY24 data center GPU revenue forecast by $0.5 billion to over $4.0 billion, it projected another quarter of modest year-over-year revenue growth, estimating Q2 sales between $5.4 billion and $6.0 billion. This cautious near-term guidance, amidst an overall positive long-term outlook for AI, contributed to the decline in share price.

Disclaimer: the above is a summary showing certain market information. AInvest is not responsible for any data errors, omissions or other information that may be displayed incorrectly as the data is derived from a third party source. Communications displaying market prices, data and other information available in this post are meant for informational purposes only and are not intended as an offer or solicitation for the purchase or sale of any security. Please do your own research when investing. All investments involve risk and the past performance of a security, or financial product does not guarantee future results or returns. Keep in mind that while diversification may help spread risk, it does not assure a profit, or protect against loss in a down market.