AMD Shares Slide As Chipmaker Reports PC Revenue Slump, Weak Guidance

Advanced Micro Devices, Inc. AMD reported first-quarter results Tuesday that beat muted expectations but guided the running quarter below the consensus estimate.

The first quarter saw a plunge in AMD client revenue, although data center revenue held up fairly well. The company also expressed confidence in its performance in the second half of the year. The stock pulled back in reaction to the report.

Peer Intel Corp. INTC’s better-than-feared results, released last week, sent that stock higher.

AMD’s Key Q1 Numbers: Santa Clara, California-based AMD reported non-GAAP earnings per share, or EPS, of 60 cents, exceeding the consensus estimate of 56 cents.

This represented a 47% year-over-year drop from the $1.13 per share reported a year ago, and a more modest 10.5% decline from the previous quarter's 67 cents.

On a GAAP basis, the company reported a loss of 9 cents per share compared to a profit of 56 cents per share a year ago.

First-quarter revenue came in at $5.35 billion, down 9% from the $5.89 billion reported for the year-ago quarter. Analysts, on average, estimated revenue of $5.3 billion. In the preceding quarter, the topline was at $5.6 billion.

In late January while releasing its fourth-quarter results, AMD guided to first-quarter revenue of $5.3 billion, plus or minus $300 million.

"We executed very well in the first quarter as we delivered better than expected revenue and earnings in a mixed demand environment," said Lisa Su, CEO of AMD.

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AMD’s Margin Profile: The company's non-GAAP gross margin contracted by 3 percentage points year-over-year to 50%.  The metric, however, came in line with expectations. Sequentially, margins fell by 1 percentage point.

AMD’s Business Segments: AMD's Data Center revenue remained nearly flat year-over-year at $1.3 billion, and operating profit from the segment fell from $427 million to $148 million.

Client revenue fell by about 65% from $2.12 billion to $739 million and the division reported an operating loss of $172 million, reversing from a profit of $692 million. Gaming revenue dipped 6.3% to $1.76 billion and the segment reported an operating profit of $314 million, down from $358 million last year.

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 segments.

Peer Intel Corp. INTC reported last week that its first-quarter Client Computing Group revenue fell 38% year-over-year and Data Center and AI revenue were down 39%.

Looking Ahead: AMD guided second-quarter revenue to $5.3 billion, plus or minus $300 million, and non-GAAP gross margin to 50%. The revenue guidance trailed the consensus estimate of $5.49 billion.

"Longer-term, we see significant growth opportunities as we successfully deliver our roadmaps, execute our strategic data center and embedded priorities and accelerate adoption of our AI portfolio," said Su.

CFO Jean Hu said the company expects sequential growth in the Data Center and Client segments offset by modest declines in the Gaming and Embedded segments.

"We remain confident in our growth in the second half of the year as the PC and server markets strengthen and our new products ramp," the AMD exec said.

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 are readjusted.

Raymond James' Srini 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 prior 3% growth estimate.

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.

AMD Stock: AMD stock pulled back by 3.78% to $86.51 in after-hours trading on Tuesday, according to Benzinga Pro data.

Shares of AMD have surged by 38.48% year-to-date, 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%.

Key AMD 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 analyst price target for AMD shares, according to data compiled by TipRanks, is $105.58, suggesting 17.72% upside from current levels.

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