AMD is a Beautiful Opportunity - Earnings Report Highlights
Since the beginning of the second quarter, chip stocks have been steadily rising, amid deteriorating indicators of an economic downturn, particularly in the consumer end market. The Philadelphia Exchange Semiconductor Index (PHLX) rebounded more than 20% in July after falling almost 40% in the first half of the year. To a similar degree, AMD (NASDAQ:AMD) has surged in July, marginally beating the PHLX for the month but still below the benchmark year to date. Despite industry leader and major rival Intel's (INTC) disappointing quarterly earnings and future outlook last week, the rally maintained its pace.
Investors are getting more optimistic about AMD's resiliency in the wake of Intel's recent setback, which suggests that the former is becoming a more major participant in both the high-performance PC and data centre CPU markets. T , the company's EPYC server processors are making significant headway into the data centre and high-performance computing (HPC) segments, while its powerful next-generation PC processors such as the Radeon GPUs and Ryzen CPUs are also drawing attention from Intel.
Although most chip manufacturers that have reported second-quarter results so far are warning of a plausible decline in demand and inventory build-up - especially on consumer-centric products like memory chips used in consumer electronics products, the market for semiconductors used in data centres, auto, and premium equipment like enterprise workstations remains strong. As a result, AMD benefits from positive upswings as it strengthens its technological lead in data centre, high performance PCs, automobiles, and, more recently, telecom infrastructure prospects.
Recent market trends, which support a healthy demand environment for AMD's primary data centre end market, as well as indicators of significant growth in market share, lead to the chipmaker's sales and profits beat streak continuing. The following study will go deeper into three key factors supporting AMD's long-term upsides and outperformance in the face of near-term industry challenges: First, declining consumer spending, Second, data centre growth, and Third, solid fundamentals.
Given its high-growth potential, AMD is presently trading at roughly 5.5x projected EV/sales, which is still a big discount to the fabless semiconductor peer group mean of about 5.9x. Given that the company is currently lagging the PHLX, AMD remains a good buy at the moment. With investors incentivizing those who have proven perseverance this earnings season – as evidenced by last week's rigorous big tech earnings results, which supported the tech-heavy Nasdaq 100 add $1.5 trillion in market value in July – AMD's eagerly anticipated solid quarterly showing makes a beneficial near-term precursor in reigniting the stock for persistent uptrend momentum.
Demand from Consumer Spending prospective
Alarms from the industry about declining chip demand from consumer end markets, especially those found in consumer electronics such as cellphones and Computers, are becoming louder, reflecting prior investor fears about a declining semiconductor cycle after an outstanding growth.
PC shipments globally have already begun to slow in the first half of the year, with first-quarter volumes falling 6.8 percent year on year to 78 million units, and second-quarter volumes falling more than 15 percent to 71 million units, as consumption and investment spending power dampens due to rising rising inflation. Global PC shipments are expected to fall by 9.5 percent this year, driven by a 13.1 percent reduction in consumer PCs and a 7.2 percent loss in corporate PCs. As a result, demand for similar chips is likely to fall by more than 5% this year. Conversely, semiconductor demand from phone manufacturers is predicted to rise by just little more than 3% this year, a major deceleration from the 25% surge seen in 2021.
Nonetheless, despite evidence of a weakening consumer end market as consumers reduce discretionary spending due to relatively close economic uncertainty, AMD's growth in this sector is projected to be robust given its minimal direct exposure. Given observations that the present PC market is migrating to higher end and more expensive sectors, supported by commercial purchases to suit the concept that hybrid and remote work is the new future, the chipmaker is confident in its ability to overcome near-term difficulties. In particular, AMD expects persistent business demand for high-performance workstations to enable a "hybrid-virtual" work environment to largely offset any near-term repercussions on consumer-centric gaming PC sales owing to unpleasant economic difficulties in the consumer end market.
This view is reinforced by recent results provided by PC makers such as Microsoft (MSFT), which verified that sales growth for its Surface devices were mostly robust in the second quarter due to sustained corporate demand. Other PC makers, such as Dell (DELL), have made similar remarks about the strength of enterprise demand, owing to the growing urgency of "modernising the technology infrastructure" to ensure intelligence, cyber-resiliency, automation, and multi-cloud adaptability" in the new baseline of remote co - operation.
While AMD has chosen to be conservative in terms of PC prospects for the current year, indicating a year-on-year reduction in negative single digits for related sales, the firm is projected to recuperate some market share by selling its flagship, more costly models. AMD also has a number of commercial machines in the works for this year, including the recent debut of the (Ryzen 6000 Series) processors for upscale laptop applications, which maintains good PC performance for 2022 despite a wider market slump. With seasonal demand from back-to-school and Christmas sales in the second half of the year, AMD continues on track to increase its PC market share.
How Data Center is ultimate strength
Global demand for data centre processors will stay high in the next years, as cloud computing remains a crucial necessity in the business sector, with no indications of abating. The market for data centre processors, in particular, is forecast to grow by at least 20% this year, more than offsetting any consumer-related slowdown that AMD may see owing to near-term macroeconomic downturn.
The positive trends have been further supported by the rising urgency of business cloud migration to accommodate a new era of remote working, as indicated in the previous section. More than half of firms anticipate that cloud adoption would account for a substantial share of investments over the next two years, propelling the worldwide cloud-computing industry to more than $800 billion by 2025. Meanwhile, the market for Artificial intellegence hardware, such as data centre chips like AMD's EPYC server CPUs, is predicted to grow at a CAGR of 42% to $1.7 trillion by the end of this decade.
Even in the face of a possibly tightened economic situation in the near future, these numbers continue to support a solid demand scenario for both cloud service providers and chipmakers like AMD. Furthermore, AMD's ongoing commitment to innovation helps the company's long-term position and market share in data centre possibilities. AMD's EPYC server CPUs have been a flagship product in recent times, driving the firm's break-out growth and data centre market share increases. EPYC CPUs are currently in their 4th generation, with a family of four chips encompassing (Genoa, Genoa-X, Bergamo, and Siena), all of which are geared to optimise performance across a wide range of use cases, from cloud applications to communication system and telecom installations.
Server processors have grown into some of the most powerful and fastest CPUs utilised in HPC designs today. AMD's EPYC CPUs may now be found in 72 of the world's top 500 Fastest Super-computers, a threefold increase from 2020. The EPYC processors' dominance on the (Green-500) list attests to its power efficiency for sophisticated tasks. Till now, AMD's EPYC processors power 80 percent of the world's most efficient supercomputers, putting the company's HPC competency on able to compete with legacy competitor Intel's. AMD's growing strength in data centre and HPC prospects are also supported by key rival Intel's admission of (server market share loss) last week, which provide substantiated support for AMD's long-term growth path. All whilst, AMD's Gen 4 EPYC server cpus are well-positioned to benefit from Intel's delayed launch of its next-generation Sapphire Rapids server processor cores, which threatens to further weaken the other's market dominance.
Fundamentals Strength
Over the previous seven quarters, AMD has had a constant record of good sales and profit surprises. And we anticipate that AMD's 2Q22 earnings will be similarly robust, with top- and bottom-line growth driven by ongoing market share gains and the ramp-up of innovative products to scale.
Top-line, AMD continues to illustrate its ability to capture market share gains in an extremely competitive industry by strengthening its technological capability to attract demand and growing its total addressable market (TAM) through recent acquisitions such as Xilinx and Pensando. Especially, the merging of Xilinx and Pensando is intended to provide new synergies when combined with AMD's current competence in CPUs and GPUs, propelling the firm into new excursions to diversify its income portfolio.
AMD Total Revenue vs Total operating expenses
Free Cash Flow
Investors are getting more optimistic about AMD's resiliency in the wake of Intel's recent setback, which suggests that the former is becoming a more major participant in both the high-performance PC and data centre CPU markets. T , the company's EPYC server processors are making significant headway into the data centre and high-performance computing (HPC) segments, while its powerful next-generation PC processors such as the Radeon GPUs and Ryzen CPUs are also drawing attention from Intel.
Although most chip manufacturers that have reported second-quarter results so far are warning of a plausible decline in demand and inventory build-up - especially on consumer-centric products like memory chips used in consumer electronics products, the market for semiconductors used in data centres, auto, and premium equipment like enterprise workstations remains strong. As a result, AMD benefits from positive upswings as it strengthens its technological lead in data centre, high performance PCs, automobiles, and, more recently, telecom infrastructure prospects.
Recent market trends, which support a healthy demand environment for AMD's primary data centre end market, as well as indicators of significant growth in market share, lead to the chipmaker's sales and profits beat streak continuing. The following study will go deeper into three key factors supporting AMD's long-term upsides and outperformance in the face of near-term industry challenges: First, declining consumer spending, Second, data centre growth, and Third, solid fundamentals.
Given its high-growth potential, AMD is presently trading at roughly 5.5x projected EV/sales, which is still a big discount to the fabless semiconductor peer group mean of about 5.9x. Given that the company is currently lagging the PHLX, AMD remains a good buy at the moment. With investors incentivizing those who have proven perseverance this earnings season – as evidenced by last week's rigorous big tech earnings results, which supported the tech-heavy Nasdaq 100 add $1.5 trillion in market value in July – AMD's eagerly anticipated solid quarterly showing makes a beneficial near-term precursor in reigniting the stock for persistent uptrend momentum.
Demand from Consumer Spending prospective
Alarms from the industry about declining chip demand from consumer end markets, especially those found in consumer electronics such as cellphones and Computers, are becoming louder, reflecting prior investor fears about a declining semiconductor cycle after an outstanding growth.
PC shipments globally have already begun to slow in the first half of the year, with first-quarter volumes falling 6.8 percent year on year to 78 million units, and second-quarter volumes falling more than 15 percent to 71 million units, as consumption and investment spending power dampens due to rising rising inflation. Global PC shipments are expected to fall by 9.5 percent this year, driven by a 13.1 percent reduction in consumer PCs and a 7.2 percent loss in corporate PCs. As a result, demand for similar chips is likely to fall by more than 5% this year. Conversely, semiconductor demand from phone manufacturers is predicted to rise by just little more than 3% this year, a major deceleration from the 25% surge seen in 2021.
Nonetheless, despite evidence of a weakening consumer end market as consumers reduce discretionary spending due to relatively close economic uncertainty, AMD's growth in this sector is projected to be robust given its minimal direct exposure. Given observations that the present PC market is migrating to higher end and more expensive sectors, supported by commercial purchases to suit the concept that hybrid and remote work is the new future, the chipmaker is confident in its ability to overcome near-term difficulties. In particular, AMD expects persistent business demand for high-performance workstations to enable a "hybrid-virtual" work environment to largely offset any near-term repercussions on consumer-centric gaming PC sales owing to unpleasant economic difficulties in the consumer end market.
This view is reinforced by recent results provided by PC makers such as Microsoft (MSFT), which verified that sales growth for its Surface devices were mostly robust in the second quarter due to sustained corporate demand. Other PC makers, such as Dell (DELL), have made similar remarks about the strength of enterprise demand, owing to the growing urgency of "modernising the technology infrastructure" to ensure intelligence, cyber-resiliency, automation, and multi-cloud adaptability" in the new baseline of remote co - operation.
While AMD has chosen to be conservative in terms of PC prospects for the current year, indicating a year-on-year reduction in negative single digits for related sales, the firm is projected to recuperate some market share by selling its flagship, more costly models. AMD also has a number of commercial machines in the works for this year, including the recent debut of the (Ryzen 6000 Series) processors for upscale laptop applications, which maintains good PC performance for 2022 despite a wider market slump. With seasonal demand from back-to-school and Christmas sales in the second half of the year, AMD continues on track to increase its PC market share.
How Data Center is ultimate strength
Global demand for data centre processors will stay high in the next years, as cloud computing remains a crucial necessity in the business sector, with no indications of abating. The market for data centre processors, in particular, is forecast to grow by at least 20% this year, more than offsetting any consumer-related slowdown that AMD may see owing to near-term macroeconomic downturn.
The positive trends have been further supported by the rising urgency of business cloud migration to accommodate a new era of remote working, as indicated in the previous section. More than half of firms anticipate that cloud adoption would account for a substantial share of investments over the next two years, propelling the worldwide cloud-computing industry to more than $800 billion by 2025. Meanwhile, the market for Artificial intellegence hardware, such as data centre chips like AMD's EPYC server CPUs, is predicted to grow at a CAGR of 42% to $1.7 trillion by the end of this decade.
Even in the face of a possibly tightened economic situation in the near future, these numbers continue to support a solid demand scenario for both cloud service providers and chipmakers like AMD. Furthermore, AMD's ongoing commitment to innovation helps the company's long-term position and market share in data centre possibilities. AMD's EPYC server CPUs have been a flagship product in recent times, driving the firm's break-out growth and data centre market share increases. EPYC CPUs are currently in their 4th generation, with a family of four chips encompassing (Genoa, Genoa-X, Bergamo, and Siena), all of which are geared to optimise performance across a wide range of use cases, from cloud applications to communication system and telecom installations.
Server processors have grown into some of the most powerful and fastest CPUs utilised in HPC designs today. AMD's EPYC CPUs may now be found in 72 of the world's top 500 Fastest Super-computers, a threefold increase from 2020. The EPYC processors' dominance on the (Green-500) list attests to its power efficiency for sophisticated tasks. Till now, AMD's EPYC processors power 80 percent of the world's most efficient supercomputers, putting the company's HPC competency on able to compete with legacy competitor Intel's. AMD's growing strength in data centre and HPC prospects are also supported by key rival Intel's admission of (server market share loss) last week, which provide substantiated support for AMD's long-term growth path. All whilst, AMD's Gen 4 EPYC server cpus are well-positioned to benefit from Intel's delayed launch of its next-generation Sapphire Rapids server processor cores, which threatens to further weaken the other's market dominance.
Fundamentals Strength
Over the previous seven quarters, AMD has had a constant record of good sales and profit surprises. And we anticipate that AMD's 2Q22 earnings will be similarly robust, with top- and bottom-line growth driven by ongoing market share gains and the ramp-up of innovative products to scale.
Top-line, AMD continues to illustrate its ability to capture market share gains in an extremely competitive industry by strengthening its technological capability to attract demand and growing its total addressable market (TAM) through recent acquisitions such as Xilinx and Pensando. Especially, the merging of Xilinx and Pensando is intended to provide new synergies when combined with AMD's current competence in CPUs and GPUs, propelling the firm into new excursions to diversify its income portfolio.
AMD Total Revenue vs Total operating expenses
Free Cash Flow
EPS - 0.5$
Revenue - $6.5BB