Expect AMD to Crush Earnings Today, Says Top Analyst

Semiconductors manufacturer Advanced Micro Devices (AMD) is getting ready to report its Q1 2022 earnings and those earnings are due out… this evening ! With earnings now just hours away, investment banker Susquehanna snuck out one last quick note, to prepare investors for what’s coming.

If you own AMD stock, you’re probably going to like what you’re going to hear.

The “tl;dr” on today’s note, authored by 5-star analyst Christopher Rolland, of Susquehanna, is that (1) analysts are forecasting that AMD will report $0.91 per share in pro forma profits on $5.5 billion in sales in fiscal Q1; (2) AMD is probably going to “beat” those numbers; and (3) AMD will then proceed to raise estimates even higher for the rest of this year. Rolland predicts that investors will see AMD report $0.94 per share today, and that it will grow earnings steadily over at least the next couple of quarters, eventually ending this fiscal year with $4.13 per share in pro forma earnings — $0.10 more than Rolland previously predicted, and $0.13 ahead of consensus predictions.

Rolland also raised his predictions for fiscal 2023, by the way. Rolland sees AMD earning $4.78 per share next year — 16% growth — and that number is about $0.12 ahead of consensus estimates.

Not all the news is good, of course. Citing market research data from IDC, Rolland observes that Q1 2022 PC shipments declined 13% sequentially from Q4 2021 — a huge reversal given that analysts had been forecasting PC unit sales growth of 3%.

The analyst isn’t 100% certain what’s to blame for this shortfall in sales — whether it’s production slowdowns from China’s anti-Covid measures, too-high inventory among PC-makers, or something else. Whatever the reason, though, Rolland notes that this decline in PC volumes will be exacerbated (from AMD’s point of view) by a competition from Intel’s “much more viable Alder Lake PC” chips, which he sees Intel selling at “highly competitive pricing,” potentially eating into AMD’s market share in PC chips. Simultaneously, Rolland warns that in graphics chips, aftermarket GPU pricing “collapsed” during Q1. Granted, “collapse” here is a relative term — he says chips are selling for a 42% markup over MSRP — but still, this is a smaller markup than they’d been commanding recently.

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All that being said, the PC news shouldn’t be a deal breaker for AMD investors because “2022 is the year of [the] AMD server,” opines Rolland. Here, Intel chips suffer from “performance uncertainty… with early results favoring AMD’s Milan [over Intel’s Sapphire Rapids chipsets].” With AMD having the upper hand in server chips, therefore, Rolland predicts that the company will enjoy continued sales momentum all year long, potentially raking in $5 billion or more in sales of server chips in 2022, with the result that AMD’s server division will make up almost half (~+$2B) of the company’s total 2022 organic growth outlook (~+$5B).”

In short, not only Q1 but 2022 as a whole still looks bright and shiny for AMD. Accordingly, Rolland reiterates a “positive” (i.e. buy) view on AMD stock, and assigns the shares a $160 price target implying as much as 76% upside from pre-earnings prices. (To watch Rolland’s track record, click here)

The consensus breakdown provides further cheer; 12 Buys and 5 Holds coalesce to a Moderate Buy consensus rating. With an average price target of $145.23, analysts expect ~60% upside from current levels. (See AMD stock forecast on TipRanks)

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Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.