AMD Q1 Earnings Preview: Street Loses Sleep Over Q2 Outlook Amid Datacenter Challenges

Advanced Micro Devices' AMD first-quarter earnings will be reported in on Tuesday after the close, a little less than a week after peer Intel Corp. INTC announced underwhelming but better-than-feared results.

Key Q1 Expectations: Santa Clara, California-based AMD is expected to report earnings per share, or EPS, of $0.56, according to Benzinga Pro data. The estimate has come down from the $0.67 expected 90 days ago.

The consensus estimate marks a 50% year-over-year drop from the $1.13 per share reported a year ago, and a more modest 16.4% decline from the previous quarter's $0.67.

First-quarter revenue may have fallen 10% year-over-year from $5.89 billion to $5.3 billion. In the preceding quarter, the topline was at $5.6 billion.

In late January while releasing the fourth-quarter results, AMD guided to first-quarter revenue of $5.3 billion, plus or minus $300 million. The company modeled non-GAAP gross margin of about 50% compared to 51% in the preceding quarter and 53% in the year-ago quarter.

Raymond James analyst Srini Pajjuri in his earnings preview note said he expects in-line first quarter results.

Business Segments: AMD's previous guidance suggested a year-over-year decline in Client and Gaming segment revenue, with some offsetting effect coming from the Embedded and Data Center segment.

Intel's first-quarter Client Computing Group revenue fell 38% year-over-year, and Data Center and AI revenue were down 39%. Gross margin contracted by a whopping 16.2% to 34.2%. The company attributed the weakness to underutilization charges and charges related to soon-to-launch products.

Looking Ahead: Morgan Stanley analyst Joseph Moore said in a recent note that he expects cloud digestion to remain a negative factor for AMD in the second quarter as inventories remain high and spending remains in "digestion mode."

The analyst sees enthusiasm for AI to be a modest negative for spending on traditional servers in the second quarter, as budgets get readjusted.

Pajjuri echoed a similar sentiment. The analyst recently trimmed his second-quarter estimates due to weaker data center trends. He expects the company to guide to flattish sequential growth versus the 3% growth previously.

"Our recent conversations in Asia point to slightly better trends in PC and Embedded segments while order trends from Cloud customers appear to have weakened in the past few weeks," he added.

The analyst sees the year-over-year growth bottoming in the second quarter followed by a strong recovery in data center in the second half of 2023 on the back of share gains, Genoa CPU ramps and EL Captain supercomputer builds.

Also Read: Bullish On AMD And Nvidia? This Direxion ETF Offers 3x Leverage On Semiconductor Stocks

AMD Stock: Shares of AMD have surged by 38.48%, capitalizing on the reversal in sentiment toward the tech space. Tech stocks are on a solid rebound from anemic performance in 2022.

The iShares Semiconductor ETF SOXX has advanced about 19.81% in the same period and the Invesco QQQ ETF QQQ, an exchange-traded fund that tracks the performance of the biggest non-financial tech firms, has added 21.18%.

On the upside, AMD stock has immediate resistance around $98 and a move above the level could bring it up against another resistance past the $102 area, where the stock completed a double-top formation earlier this year.

If the earnings report triggers a negative reaction, key downside support levels to watch for are $83.60 (intraday low hit in late April) and $71.60 (intraday low from early July 2022).

The average analysts' price target for AMD shares, according to data compiled by TipRanks, was $105.58, suggesting a 17.72% upside from current levels.

Price Check: Shares of AMD were trading 1.32% lower at $88.52 at the time of publication on Tuesday.

Now Read: Meta Muddles AI Progress: Chip Project Mishaps and Metaverse Ambitions Inflate Costs

Photo: Shutterstock