Zinger Key Points
- AMD's Q3 results will likely see a modest year-over-year decline, in line with Street expectations, analysts say.
- The company's advanced AI chip MI300A could see some volume pushout although ramp-up would happen in Q4, says KeyBanc.
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Chipmaker Advanced Micro Devices, Inc. AMD is scheduled to report its third-quarter results Tuesday after the market closes. Expectations are muted, given the multiple headwinds that are impacting demand.
What Wall Street Expects
Analysts, on average, estimate AMD to report third-quarter non-GAAP earnings per share, or EPS, of 64 cents, down 4.5% from 67 cents in the year-ago quarter.
The Santa Clara, California-based company beat earnings estimates in each of the past three quarters and reported a miss ahead of them.
Revenue is estimated at $5.37 billion, representing a 4.4% year-over-year decline from the year-ago quarter’s $5.62 billion. In the second quarter, the top line was at $5.36 billion.
KeyBanc Capital Markets analyst John Vinh is modeling in line with slightly higher results, driven by improving PC demand and troughing server demand, along with normalizing Milan server processor chip inventory at Cloud Service providers. Raymond James’ Srini Pajjuri called for a slight third-quarter upside, as PC tracked slightly better, and the Data Center tracked in line.
If rival Intel Corp.’s INTC quarterly results are anything to go by, a double beat is likely in the cards for AMD as well. Intel’s third-quarter EPS and revenue came in at 41 cents and $14.16 billion, ahead of the consensus estimates of 22 cents and $13.57 billion, respectively.
In early August, AMD guided third-quarter revenue to be approximately $5.7 billion, plus or minus $300 million. The company penciled in non-GAAP gross margin at about 51% compared to the previous quarter’s 50% and year-ago’s 54%.
Prospects For AMD’s Business Divisions
RayJay’s Pajjuri called for third-quarter Data Center revenue to decline at the same pace as in the second quarter when revenue fell 11%. He noted that Asia channel checks showed non-AI server spending remained stable, and GPU cannibalization wasn’t getting worse.
AMD’s third-quarter outlook suggests the Client segment will likely see 30% year-over-year growth, off a low base, the analyst said. “We believe that the worst is now behind and expect AMD to benefit from inventory normalization,” he added.
Pajjuri expects a low-single-digit sequential decline for the Gaming segment. In the second quarter, Gaming revenue was at $1.6 billion. The Embedded segment, comprising mainly Xilinx, may have seen a mid-teens sequential decline from the second quarter’s $1.5 billion, the analyst said. The expectation is premised on continued inventory normalization and softer 5G rollouts.
See Also: Best Semiconductor Stocks
What to Expect From AMD’s Q4 Outlook
The current consensus estimates call for AMD to report fourth-quarter EPS of 83 cents and revenue of $6.01 billion. This is higher than the 69 cents and $5.6 billion reported, respectively, for the fourth quarter of 2022.
Analysts, however, are guarded. KeyBanc’s Vinh said he sees moderate risk to the fourth-quarter guidance, given some volume pushout of MI300A at HP/El Capitan. But he expects the ramp-up to happen in the fourth quarter. The analyst also noted signs of the more moderate ramp of Genoa, as some customers have pushed out the timing of their ramps.
RayJay models modest revenue from MI300X GPU in 4Q and sees a gradual ramp through 2024, given the firm’s expectations that it could take a few quarters for customers to work through software optimization.
Where Investors Will Direct Their Attention
When AMD CEO Lisa Su and her management team take the podium for the earnings call, investors, KeyBanc said, would be keen on getting insights into the following:
- Status of MI300X timing of the ramp, and potential contribution in 2024
- Updates on the Genoa ramp
- PC recovery and market share expectations vs. Intel
How AMD Stock Is Faring
After rallying along with the broader market since the start of the year, AMD shares peaked at $130.79 (intraday) on May 30. The year’s closing high was $129.19 hit on June 12.
Chart Courtesy Of Benzinga
The stock has gained about 49% year-to-date, outperforming the S&P 500’s and Nasdaq-100′s gains of 8.5% and 29.6%, respectively. The iShares Semiconductor ETF SOXX has risen 26.9% in the same timeframe.
The average rating for the stock is a Strong Buy, and the average consensus price target is $136.18, according to data from TipRanks.
In premarket trading, AMD shares fell 0.10% to $96.08, according to Benzinga Pro data.
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