Why AMD Shares May Not Be Finished Marching Higher

Paul Ausick

Advanced Micro Devices Inc. (NYSE: AMD) reported first-quarter 2019 earnings after markets closed Tuesday. For the quarter, the chipmaker posted adjusted diluted earnings per share (EPS) of $0.06 on revenues of $1.27 billion. In the same period a year ago, the company reported EPS of $0.11 on revenues of $1.65 billion. First-quarter results compare to the consensus estimate for EPS of $0.05 on $1.26 billion in revenues.

Not an earth-shaking result, but better than analysts were expected on both the top and bottom lines. The stock is up about 50% so far this year and there are some good things in the pipeline set to emerge later this year.

In its computing and graphics segment, AMD reported revenue of $831 million, down 26% year over year and 16% sequentially. The year-over-year decline was attributed to lower graphics channel sales, partially offset by increased client processor and datacenter GPU sales. The quarter-over-quarter decline was primarily due to lower client processor sales.

In the enterprise, embedded and semi-custom segment revenue totaled $441 million, down 17% year-over-year and up 2% sequentially. The year-over-year revenue decline was primarily due to lower semi-custom product revenue, partially offset by higher server sales. The sequential increase was primarily driven by higher semi-custom revenue.

For the second quarter, AMD expects revenue of around $1.52 billion, plus or minus $50 million, an increase of approximately 19% sequentially and a decrease of approximately 13% year-over-year. The sequential increase is expected to be driven by growth across all businesses. The year-over-year decrease is expected to be primarily driven by lower graphics channel sales, negligible blockchain-related GPU revenue, and lower semi-custom revenue. AMD expects adjusted gross margin to be approximately 41 percent in the second quarter of 2019.

Analysts had forecast first-quarter earnings at $0.08 per share and revenues at $1.48 billion. For the full year, revenues were seen at $6.9 billion (about 6.5% higher than 2018 revenues) and EPS was forecast at $0.62.

The company’s CEO, Dr. Lisa Su, said:

We delivered solid first quarter results with significant gross margin expansion as Ryzen and EPYC processor and datacenter GPU revenue more than doubled year-over-year. We look forward to the upcoming launches of our next-generation 7nm PC, gaming and datacenter products which we expect to drive further market share gains and financial growth.

AMD’s shares closed at $27.63 on Tuesday, down about 0.2% for the day, but jumped nearly 4% in the after-hours trading session, to trade at $28.72. The stock’s 52-week range is $10.77 to $34.14. The consensus price target for the shares was $26.00 before the report.