It has been about a month since the last earnings report for Advanced Micro Devices (AMD). Shares have added about 10.6% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Advanced Micro due for a pullback? Before we dive into how investors and analysts have reacted as of late, let’s take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
AMD Beats on Q2 Earnings & Revenues, Raises ’21 Outlook
Advanced Micro Devices reported second-quarter 2021 non-GAAP earnings of 63 cents per share, which surpassed the Zacks Consensus Estimate by 16.7%. The bottom line soared 250% year over year and 21% sequentially.
Revenues of $3.85 billion outpaced the Zacks Consensus Estimate by 6.4% and surged 99% year over year. On a quarter-over-quarter basis, the top line increased 12%.
Robust performance from the Computing and Graphics, and Enterprise Embedded and Semi-Custom segments drove year-over-year improvement.
AMD raised its 2021 guidance for revenues and gross margin on the back of strong growth across all businesses. The company also announced that its stockholders have approved the proposed acquisition of Xilinx. The buyout is expected to conclude by the end of 2021.
Top-Line Details
Computing and Graphics segment revenues of $2.25 billion increased 65% year over year and 7% sequentially. The upside can be attributed to higher revenues from client processor and graphics sales.
Growth in client processor average selling price (“ASP”) was driven by a favorable mix of Ryzen desktop and notebook processor sales. GPU ASP growth in the reported quarter was driven by strong high-end graphics product sales, including data center GPU sales.
AMD’s Ryzen Embedded Processors and RDNA 2-based GPUs are now being used by Tesla to power the infotainment system in its new Model S and X vehicles.
Valve announced Steam Deck powered by a semi-custom AMD processor. AMD also introduced FidelityFX Super Resolution (“FSR”), its latest spatial upscaling algorithm feature, which boosts frame rates and deliver high-quality, high-resolution gaming experiences. More than 40 game developers have already pledged support for FSR.
Enterprise, Embedded and Semi-Custom segment revenues of $1.60 billion were up 183% year over year and 19% sequentially. The year-over-year increase can be attributed to higher semi-custom product sales and EPYC processor revenues.
EPYC’s adoption rate continued to increase in the reported quarter. AMD and its partners, including Microsoft and Alphabet, announced several new high-performance computing systems. These include Microsoft Azure supercomputers for United Kingdom’s Met Office, The Perlmutter supercomputer and The Singapore National Supercomputing Centre supercomputer.
Google Cloud and AMD announced a new instance (T2D) based on Third-Gen EPYC processors. The company’s second-gen EPYC processors are powering the new HPE Alletra 6000 storage solutions.
Operating Details
Non-GAAP gross margin expanded 400 basis points (bps) on a year-over-year basis and 200 bps sequentially, to 48%. The gross margin expansion was primarily driven by a richer mix of sales, particularly due to strong demand for high-end Ryzen, Radeon and EPYC processors.
Non-GAAP operating expenses increased 47% year over year and 10% quarter over quarter to $909 million.
Non-GAAP operating margin of 24% was significantly better than the year-ago quarter’s 12%. Sequentially, operating margin expanded 200 bps.
Segment wise, Computing and Graphics operating income was $526 million, up 163% year over year and 8.5% sequentially, courtesy of higher revenues. Enterprise, Embedded and Semi-Custom operating income was $398 million, significantly higher than year-ago quarter’s figure of $33 million. Sequentially, the figure increased 43.7%.
Balance Sheet & Cash Flow
As of Jun 26, 2021, AMD had cash and cash equivalents (including marketable securities) of $3.79 billion compared with $3.12 billion as of Mar 27, 2021.
As of Jun 26, 2021, total debt (long-term plus short-term) was $313 million, down from $314 million as of Mar 27, 2021.
Operating cash flow was reported at $952 million compared with $898 million in first-quarter 2021.
Free cash flow was $888 million in the second quarter compared with $832 million in first-quarter 2021.
AMD announced a share repurchase program worth $4 billion in the reported quarter.
Guidance
AMD expects third-quarter 2021 revenues to be $4.1 billion (+/-$100 million), which indicates year-over-year growth of 46% and quarter-over-quarter improvement of 6%.
The year-over-year growth is expected to be driven by robust sales across all its businesses. The sequential increase is projected to be led by growth across data center and gaming verticals.
Non-GAAP gross margin is anticipated to be 48%.
For 2021, AMD now expects revenues to increase 60% year over year, compared with the prior-projected growth of 50%. The Zacks Consensus Estimate for 2021 revenues is pegged at $14.71 billion, suggesting year-over-year growth of 50.7%.
AMD now expects non-GAAP gross margin for 2021 to be 48%, up from the previous guidance of 47%.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended upward during the past month. The consensus estimate has shifted 22.86% due to these changes.
VGM Scores
Currently, Advanced Micro has a great Growth Score of A, though it is lagging a bit on the Momentum Score front with a B. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren’t focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Advanced Micro has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.
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