AMD Stock Rallies Following Q4 Beat: Chipmaker Weathers PC Market Weakness With Strong Server Chip Sales

Advanced Micro Devices, Inc. AMD reported fourth-quarter results Tuesday that came in above expectations as strong EPYC server processor sales and contributions from the Xilinx unit helped offset the steep plunge in client sales and modest declines in gaming processor sales.

AMD’s Key Q4 Numbers: Santa Clara, California-based AMD reported fourth-quarter non-GAAP earnings per share, or EPS, of 69 cents, above the consensus estimate of 67 cents per share. It was also higher than the third quarter’s 67 cents per share, but down 25% from the year ago’s 92 cents per share.

Fourth-quarter revenue came in at $5.6 billion compared to the consensus of $5.5 billion and the company’s guidance of $5.5 billion plus or minus $300 million.

The top line grew 16% from the year ago’s $4.83 billion and was 0.5% higher than the third quarter’s $5.57 billion.

Rival Intel Corp. INTC reported last week with non-GAAP EPS of 10 cents, half as much as the Street forecast. Revenue came in at $14 billion, down 28% year-over-year and missing the consensus estimate of $14.45 billion.

For the full year, AMD reported non-GAAP EPS of $3.50 per share and revenue of $23.6 billion, up 44% year-over-year. Analysts, on average, estimated EPS of $3.51 per share and revenue of $23.51 billion.

See also: Best Semiconductor Stocks

Margin Profile: AMD’s fourth-quarter non-GAAP margin expanded 70 basis points to 51%, in line with the company’s guidance. This represents a one percentage point increase from the third-quarter figure of 50%.

“2022 was a strong year for AMD as we delivered best-in-class growth and record revenue despite the weak PC environment in the second half of the year,” said Dr. Lisa Su, chair and CEO of AMD.

AMD’s Revenue By Business: Data center revenue rose 42% to $1.7 billion, thanks to strong EPYC server processor sales, and contributed $444 million in operating income.

Susquehanna analyst Christopher Ronald said in a recent note the performance gap of AMD’s Genoa processors over Intel’s Sapphire Rapids may have allowed the former to overcome a softer macro backdrop.

The Embedded segment’s revenue soared 1,868% to $1.4 billion, reflecting the contribution from the Xilinx acquisition, which was completed in February 2022. It contributed $699 million to operating income.

On the other hand, Gaming revenue fell 7%, as lower gaming graphics sales were partially offset by semi-custom revenue.

As expected, the Client segment saw a 51% drop in revenue to $903 million, dragged by a weak PC market and a significant inventory correction across the PC supply chain. The segment recorded an operating loss of $152 million.

Canalys quarterly PC shipment data released earlier this month showed that global PC shipments fell 28.7% to 65.44 million units, marking a low point for the year.

Bernstein analyst Stacy Rasgon recently downgraded the stock from Outperform to Market Perform, premising the action on deterioration in the PC environment.

CEO Su said: “We accelerated our data center momentum and closed our strategic acquisition of Xilinx, significantly diversifying our business and strengthening our financial model.”

Forward Outlook: AMD guided first-quarter revenue to about $5.3 billion, plus or minus $300 million, down 10% year-over-year. The company sees the weaknesses in the Client and Gaming segments as continuing. 

Wall Street expects the company to report EPS of 68 cents and revenue of $5.48 billion in the first quarter. 

The company guided the quarterly gross margin to about 50%.

After an estimated 43.1% growth in 2022 revenue, analysts expect the chipmaker’s revenue growth to slow notably to 5.2% in 2023.

Intel issued below-consensus EPS and revenue forecasts last week for the first quarter.

AMD Price Action: AMD shares fell about 55% in 2022, moving in a range of $54.57 (Oct. 13, 2022)-$152.42 (Jan. 4, 2022).

Since the start of 2023, the stock has charted a recovery course along with the broader market. The stock is up 16% year-to-date, closing Tuesday’s regular session 3.73% higher at $75.15.

The average analyst 12-month price target for AMD shares is $90.43, according to data compiled by TipRanks. This suggests scope for roughly 25% upside.

In the after-hours session, AMD shares were trading 3.62% higher at $77.76, according to Benzinga Pro data

Read next: Can Market Sustain Upward Momentum In Tech-Heavy Earnings Week? Apple, Amazon, AMD, Alphabet, Ford Among Key Quarterly Reports To Watch

Photo courtesy of AMD. 

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