AMD Earnings Expectations

This upcoming earnings report for chip maker Advanced Micro Devices will be the deciding factor in whether the company can continue to live up to its inflated valuation.

Now the third priciest stock in the PHLX Semiconductor index, AMD’s [$AMD] latest results are expected Tuesday at the close. Investors will be keeping an eye on whether the company is still focused on bridging the gap between its larger rival Intel [$INTC].

For Q4, analysts are predicting adjusted earnings of 47 cents a share on sales of $3.02 billion. AMD divides its business into two broad segments. Computer and graphics is anticipated to yield sales of $1.83 billion. Its second segment includes its data center business and revenue from the custom chips designed for next generation gaming consoles; it’s expected to bring in $1.21 billion in revenue.

Much like Intel, which posted earnings last week, AMD is probably benefiting from strong personal computer sales as more people work from home. Citi Research analyst Christopher Danely penned in a client note on Monday that he thinks shares will rise after earnings thanks to a favorable environment surrounding the company—a weaker Intel, has benefited AMD’s computer and data center chip sales. The analyst foresees demand for PCs to slow by the second half of 2021.

While the new systems will add to the top line, the yield on the new semiconductors will likely be adverse on the first batches of chips—as with many new customized processors.

The Street is generally bullish on AMD shares, with 60% of analysts rating the stock at Buy or its equivalent. The mean price target, at just under $96 a share, implies minimal gains for the stock, though. It closed Monday at $94.13. A good 10% of analysts rate AMD at Sell, including Citi’s Danely, who thinks there’s likely to be a price battle between Intel and AMD at some point.

Aside from taking market share from rival Intel, AMD is readying to benefit from the new video game systems that Microsoft [$MSFT] and Sony [$SNE] dropped in 2020. Demand for the consoles have been skyhigh, as more people have turned to video games for entertainment during the pandy. But the gaming hardware makers have also had to contend with virus-related supply chain disruptions that have caused chip shortages.

In October, AMD announced that it planned to buy Xilinx [$XLNX] for $35 billion in stock, a deal that promises to transform both companies. Xilinx is known for its programmable chips, which are useful for emerging technologies that don’t already have semiconductors specifically designed for them. The deal is expected to close by the end of the year, and investors could get a progress update on the earnings call.


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