AMD shares surges after earnings report and better guidance 📈

Chip maker Advanced Micro Devices (AMD.US) showed third-quarter results yesterday, after the Wall Street session closed. The report came in weaker than expectations but beat the 'gloomy' estimates the company shared in October signaling rapidly declining demand for personal computers. The stock gained nearly 5% before the market opened:

Revenue: $5.57 billion vs. $5.62 billion forecast (Refinitiv)

Earnings per share: $0.67 vs. $0.68 forecasts (Refinitiv)

Data center revenue: $1.61 billion vs $1.64 billion forecasts (Street Account) (up 45% y/y)

Gaming revenue: $1.63 billion vs. $1.63 billion forecast (Street Account) (up 14% y/y)

Revenue from Embedded: $1.3 billion vs. $79 million in Q2, in line with forecasts (Street Account) 

Revenue forecast for 2022: $23.5 billion vs. $26.3 billion (August estimate) vs. $23.88 billion forecast (Refinitiv)

• Earnings per share came in marginally below expectations. Revenue missed expectations by roughly $50 million. The company's net income for the year fell 93% to $66 million vs. a record $2021. However, this is primarily due to the huge acquisition of Silicon Valley company Xilinx, the exclusive global manufacturer of chips called 'field-programmable gate arrays' for $49 billion. The company also points out that demand for chips used in Microsoft and Sony consoles remains strong. That demand is likely to increase in the wake of the festive fourth quarter;
• In the database segment, AMD also acquired startup Pensando this year, for $1.9 billion, revenues from the segment continue to grow at a very fast rate of 45% per year.  The manufacturer indicated that demand for 'Genoa' server chips remains healthy, and on November10 the company plans to unveil all-new Epyc chips;
• Despite a slowdown in the technology market and internal problems in the semiconductor market caused by US export restrictions to China, revenues grew 29% year-on-year. The results of AMD's four major segments were better than expectations from the October announcement.  AMD expects growth in chips used in servers in the coming quarters. However, the company expects a further slowdown in the PC market in the fourth quarter of the year and a decline in gross margin to 52%, compared to 54% forecast at the end of Q2. At the same time, AMD expects continued growth in cloud computing business, the company commented on its outlook in this segment:

"We have had very good progress with North American cloud providers, and we continue to believe that while there may be some short-term, let's call it optimizations with individual cloud providers, over the medium term ... in 2023 we expect growth in this market ... given the strength of our product portfolio and overall growth."

According to semiconductor market analyst Stacy Rasgon of Bernstein, AMD's results are better than those recently shared by Intel. The company has not indicated that it expects lower results in the last quarter of the year. The semiconductor maker's shares could prove sensitive to the outcome of the midterms elections for Congress in the US. Republicans, who are currently leading in the elections for the House of Representatives, have criticized the 'Chips and Science Act', which the Democrats want to support US chipmakers and provide them with tens of billions of dollars in funding. The money is to be used for research and construction of chip factories on U.S. soil after Taiwan, a key part of the global chip market, became a geopolitically insecure place threatened by Chinese military expansion.

• Companies that could potentially prove vulnerable to the bill's further fate and the Republicans' stance include also Intel (INTC.US), Nnvidia (NVDA.US) and Texas Instruments (TXN.US)

Advanced Micro Devices (AMD.US), interval D1. The stock has been in a downtrend since the beginning of the year. AMD's fundamental valuation can be seen as attractive to contrarian investors. The P/E ratio is 14 points, with a PEG ratio of less than 1, illustrating the continued high market pessimism toward the company's future earnings estimates. Pre-opening quotes indicate an opening near $62 per share. Source: xStation5