AMD is about to venture into a minefield


Earnings from Advanced Micro Devices Inc. will serve as an important indicator of whether the outlook for semiconductors is truly weak at the start of 2022, or just weak for some companies.

AMDA®,
+2.57%
is expected to release results after the bell on Tuesday, as the PHLX Semiconductor Index SOX,
+1.83%
teeters on the edge of a bear market. Chip stocks have struggled lately as the majority of chip and chip-related companies that have reported earnings so far have presented a weak outlook for the current quarter.

Intel Corp. INTC,
-0.67%,
Lam Research Corp. LRCX,
+1.05%,
KLA Corp. KLAC,
+1.34%,
and Western Digital Corp. WDC,
-7.32%
all reported forecasts that fell short of Wall Street expectations in one way or another, with Texas Instruments Inc. TXN,
+2.09%
being the only company to forecast a better than expected outlook. Cowen analyst Matthew Ramsay expects AMD to join TI, with strong results as well as a new set of aggressive forecasts.

“Even after repeatedly raising guidance through 2021 from 37% to 50% to 60% to now 65%, we believe AMD has the ability to deliver an upside, which would have been higher with a better offer. Ramsay, who has an Outperform rating and a $150 price target on AMD, wrote.

Read: Chip Sector Flirts With Bear Market Territory As Semiconductor Earnings Kick Off

“We expect management to set an aggressive but achievable outlook for 2022 that demonstrates continued PC and server share gains (including the business in both), while leaving room for growth in the numbers. throughout the year as supply improves further,” the Cowen analyst wrote.

AMD’s prior quarter was so strong that analysts struggled to gauge results three months ago. One milestone to watch is whether AMD’s profit margins meet or exceed the 50% threshold, which has become even more important as Intel executives seek to keep margins “comfortably above 50%.” or within the range of 52% to 53% for the year. . AMD reported third-quarter margins of 48%, up from 44% a year ago, but unchanged from 48% in the second quarter.

News of a big deal would also be welcomed by investors. With NVDA from Nvidia Corp.,
+4.08%
the agreement to acquire Arm Ltd. reportedly collapsing, making AMD conditional regulatory approval from Chinese regulators for its $35 billion deal to acquire Xilinx Inc. XLNX,
+2.61%
even more significant. AMD revealed late last year that it expects the deal to close this quarter.

Earlier in the year at CES, AMD announced a slew of new products, including a $200 graphics card.

What to expect

Earnings: AMD is expected to post adjusted earnings of 75 cents per share on average, compared to 52 cents per share a year ago, according to a FactSet survey of 32 analysts. Estimize, a software platform that aggregates estimates from hedge fund executives, brokerages, buy-side analysts and others, is calling for earnings of 80 cents per share.

Income: AMD, on average, is expected to post revenue of $4.47 billion, according to FactSet, up from $3.24 billion in the year-ago quarter. AMD had forecast between 4.4 and 4.6 billion dollars. Estimize forecasts revenue of $4.61 billion.

Movement of stock: While AMD’s earnings and sales have both beat Wall Street estimates in the past six quarterly reports, shares have only gained twice the next day in that period – about six months ago. and when the stock jumped nearly 13% six quarters ago.

AMD shares are firmly in bearish territory, down 35% from their closing high of $161.91 set on Nov. 29, but have still gained 20% over the past 12 months. In comparison, the SOX index rose nearly 13% over this period, the S&P 500 SPX index,
+2.43%
gained 17%, and the technology-heavy Nasdaq Composite Index COMP
+3.13%
was reduced to a gain of 3.3%.

During the fourth quarter, AMD shares fell 27%, with the SOX index up 21%, the S&P 500 index nearly 11% and the Nasdaq 8%.

What analysts say

Bernstein analyst Stacy Rasgon, who has a market performance rating and a price target of $130, said AMD’s execution remains strong.

“The share position continues to improve, especially in laptops and servers,” Rasgon said. “The company’s full-year guidance implies that fourth-quarter gross margins will be just under 50%, and Street’s estimates going forward look fairly soft (and at levels below long-term goals. “

“And the company is now starting to return quite large sums of money,” Rasgon continued. “While PCs do what they want, we think AMD is capitalizing well as Intel enters the transition and looks better positioned than its larger counterpart (and at a minimum, our negative Intel call should be increasingly no longer powered by the best of AMD).”

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This PC issue was the cause of Piper Sandler analyst Harsh Kumar downgrading AMD to neutral earlier in the month. The chill comes after two straight big years for PC sales, which hit shipment levels not seen in a decade due to COVID.

Susquehanna Financial analyst Christopher Rolland, who has a positive rating on AMD, said the chipmaker’s “server roadmap continues to move forward.”

“AMD plans to release 3-D VCache “Milan-X” at 1H22, followed by Zen 4 Genoa by the end of the year,” Rolland said. “While Genoa may also experience DDR5 validation issues similar to Intel’s[Sapphire Rapids]we haven’t encountered any rumored delays for AMD’s servers.”

Jefferies analyst Mark Lipacis, who has a Buy rating and price target of $145, notes how AMD is increasing its share of the CPU market while Intel’s is shrinking.

“Intel’s share was down 150 bps to 78.9% from 80.4% on Oct 21, while AMD’s share was up 240 bps to 14.5% from 12.1%,” he said. said Lipacis.

Overall, 22 of the 40 analysts covering AMD who are tracked by FactSet share the equivalent of a “buy”, 17 call it a hold and only one calls the stock a “sell”. The average Friday afternoon price target was $145.91, which represents a 38.6% premium to the prevailing rate.

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