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Advanced Micro (AMD) Up 14.6% Since Last Earnings Report: Can It Continue?

A month has gone by since the last earnings report for Advanced Micro Devices (AMD). Shares have added about 14.6% 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 its most recent earnings report in order to get a better handle on the important drivers.

AMD Q3 Earnings Beat, Top Line Aided by Solid Client Growth

Advanced Micro Devices reported third-quarter 2023 non-GAAP earnings of 70 cents per share, beating the Zacks Consensus Estimate by 2.94% and climbing 4.5% year over year.

Revenues of $5.8 billion beat the Zacks Consensus Estimate by 1.65% and increased 4.2% year over year.

AMD shares were down roughly 1.6% in pre-market trading, given the unimpressive fourth-quarter guidance. The company expects weakness in the Gaming and Embedded segment to hurt revenues in the current quarter.

Top-Line Details

Data Center revenues declined 0.7% year over year to $1.6 billion and accounted for 27.6% of total revenues. Sequentially, revenues increased 21%, driven by strong adoption of fourth-generation AMD EPYC CPUs.

Our model estimate for third-quarter Data Center revenues was pegged at $1.62 billion.

The Client segment revenues increased 42.2% year over year to $1.46 billion and accounted for 25.1% of total revenues. Higher Ryzen mobile processor sales drove top-line growth.

Revenues jumped 46% sequentially, driven by strong Ryzen 7000 Series CPU sales. Our model estimate for third-quarter Client revenues was pegged at $1.24 billion.    

The Gaming segment revenues decreased 7.7% year over year to $1.51 billion and accounted for 26% of total revenues. The decline was primarily attributed to lower semi-custom revenues.

Our model estimate for third-quarter Gaming revenues was pegged at $1.61 billion.

The Embedded segment revenues were $1.24 billion, down 4.6% year over year. The segment accounted for 21.4% of total revenues. The top line suffered from lower performance in the communications market. Our model estimate for third-quarter Embedded revenues was pegged at $1.23 billion.

Operating Details

Non-GAAP gross margin expanded 120 basis points (bps) on a year-over-year basis to 51.1%, primarily due to lower client segment revenues.

Non-GAAP operating expenses increased 11.6% year over year to $1.7 billion.

Non-GAAP operating margin contracted 70 bps on a year-over-year basis to 22% in the third quarter.

Balance Sheet & Cash Flow

As of Sep 30, 2023, AMD had cash and cash equivalents (including marketable securities) of $5.79 billion compared with $6.29 billion as of Jul 1, 2023.

As of Sep 30, 2023, total debt was $2.47 billion, unchanged from the figure reported as of Jul 1, 2023.

Operating cash flow was reported at $421 million compared with $379 million in the second quarter of 2023.

Free cash flow was $297 million in the third quarter of 2023 compared with $254 million in the second quarter of 2023.

Guidance

AMD expects fourth-quarter 2023 revenues to be $6.1 billion (+/-$300 million), which indicates year-over-year growth of 9% and 5% sequentially at the mid-point.

It expects to witness year-over-year growth in the Data Center and Client segments by double-digit percentage. The Gaming segment is expected to decline due to the matured console cycle. Softness in the embedded market will likely hurt Embedded revenues.

Sequentially, Data Center segment revenues are expected to grow on a double-digit percentage, while Client is expected to increase. However, Gaming and Embedded segment revenues are expected to decline by a double-digit percentage.

Non-GAAP gross margin is anticipated to be roughly 51.5%. Non-GAAP operating expenses are expected to be approximately $1.74 billion.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates revision.

The consensus estimate has shifted -17.41% due to these changes.

VGM Scores

At this time, Advanced Micro has a poor Growth Score of F, a grade with the same score on the momentum front. Following the exact same course, the stock was allocated a grade of F on the value side, putting it in the fifth quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Advanced Micro has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

Performance of an Industry Player

Advanced Micro is part of the Zacks Electronics - Semiconductors industry. Over the past month, Amkor Technology (AMKR), a stock from the same industry, has gained 28.9%. The company reported its results for the quarter ended September 2023 more than a month ago.

Amkor Technology reported revenues of $1.82 billion in the last reported quarter, representing a year-over-year change of -12.6%. EPS of $0.54 for the same period compares with $1.24 a year ago.

For the current quarter, Amkor Technology is expected to post earnings of $0.41 per share, indicating a change of -38.8% from the year-ago quarter. The Zacks Consensus Estimate has changed +0.4% over the last 30 days.

The overall direction and magnitude of estimate revisions translate into a Zacks Rank #5 (Strong Sell) for Amkor Technology. Also, the stock has a VGM Score of D.

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