What To Expect From AMD’s Q2 Results?

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AMD: Advanced Micro Devices logo
AMD
Advanced Micro Devices

Advanced Micro Devices stock (NASDAQ: AMD) is expected to publish its Q2 FY’23 results on August 1 reporting on another quarter that saw declining PC sales and concerns about broader technology spending by large companies. We expect the company’s revenues to come in at about $4.8 billion, in line with consensus estimates although this would mark a year-over-year decline of about 26%. We project that earnings will come in at about $0.53 per share, slightly ahead of the consensus estimate and down by about 50% versus last year. See our dashboard  AMD Earnings Preview for a closer look at what to expect when the company publishes results.

The broader PC market has faced headwinds over Q2 as demand for PCs cools post Covid-19. Counterpoint estimates that PC shipments fell by about 15% year-over-year in Q2 2023, although shipments did see a sequential improvement of 8% versus Q1. This could likely impact sales of AMD’s client computing segment. However, while PC vendors worked through chip inventory that they built up over last year in Q1, things could get better in Q2 as inventory levels likely come down. Things could be a bit more stable on the server front as AMD continues to gain share over rival Intel, which has faced issues transitioning to smaller, more advanced process nodes. Moreover, AMD’s chips are also perceived to have a better price-to-performance ratio than Intel’s. However, overall we expect AMD’s CPU sales to see a meaningful decline over last year.

Separately, we will be watching the performance of AMD’s GPU sales, considering the surge in demand for graphics chips following the success of the AI chatbot ChatGPT. Graphics processing units are becoming the de-facto chips for running AI-related workloads. While AMD’s GPUs have typically been used more for gaming and professional applications compared to Nvidia’s chips, which are the go-to GPUs for accelerated computing applications, AMD is also now focusing on winning over the AI market. The company has announced new chips such as the MI300X chip targeted specifically at large language model training and inference for generative AI workloads. We will be looking for updates on the same when AMD publishes earnings.

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Now, is AMD stock still a buy at the current market price of about $113 per share? AMD stock trades at about 44x consensus 2023 earnings. Moreover, the company’s top line is likely to see little to no growth this year amid continued pressure on the client side of the business.  Longer-term growth in the PC market is also likely to remain muted, with growth between 2023 and 2027 projected at an average annual rate of 2.9%. [1] Considering this, we think the stock may be slightly overvalued at this juncture. We value AMD stock at about $84 per share, which is about 26% below the current market price. See our analysis on AMD Valuation: Is AMD Stock Expensive Or Cheap? for more details on what’s driving our price estimate for AMD. Also, check out our analysis of AMD Revenue for more details on the company’s key revenue streams.

What if you’re looking for a portfolio that aims for long-term growth? Here’s a value portfolio that’s done much better than the market since 2016.

Returns Jul 2023
MTD [1]
2023
YTD [1]
2017-23
Total [2]
 AMD Return -1% 74% 896%
 S&P 500 Return 3% 19% 105%
 Trefis Multi-Strategy Portfolio 7% 28% 310%

[1] Month-to-date and year-to-date as of 7/29/2023
[2] Cumulative total returns since the end of 2016

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Notes:
  1. IDC []