Advanced Micro Devices proved Tuesday it’s an emerging force within the AI chip race as its data center business contributed to better-than-expected quarterly results. Revenue within the three months ended June 29 rose 9% 12 months over 12 months to $5.84 billion, beating estimates of $5.72 billion, LSEG said. Adjusted earnings per share (EPS) rose 19% 12 months over 12 months to 69 cents, beating estimates by a penny, LSEG data showed. Advanced Micro Devices Why we own it: AMD’s relatively latest AI chip, the MI300X, is carving out a distinct segment on this fast-growing market just as a brand new notebook computer refresh cycle is getting underway. AMD CEO Lisa Su has also emerged as one in every of the chip industry’s best executives. Competitors: Intel, Nvidia and Broadcom Club Portfolio Weight: 1.49% Last Purchase: July 18, 2024 Start: July 15, 2024 Conclusion The AMD report got here at a difficult time for the stock and its artificial intelligence peers. For a moment at the least, the chipmaker’s results and upbeat comments about its AI business allayed investors’ worst fears, and shares rose greater than 7% in prolonged trading. That’s a much-needed boost. AMD was punished during July’s market rotation out of technology winners into small caps and other weaker parts of the market. Since the market turned on its head on July 11, AMD shares had only recorded two positive sessions, fell greater than 24% overall, and are negative year-to-date. We began constructing our position a couple of days later and took advantage of the following weakness so as to add to our stake. Our last purchase was on July 18 at $155.67 per share. Watching the stock fall nearly $20 per share — ultimately closing just above $138 on Tuesday — was no fun, but AMD’s results have validated our plan to reinvest within the stock. The core of our thesis is its burgeoning AI chip business, and Tuesday’s updates were encouraging. Sales of its MI300 chips — powerful processors utilized in data centers to run and train AI applications — topped $1 billion within the quarter, breaking that threshold for the primary time since launching in late 2023. And crucially, AMD raised its full-year revenue forecast for those chips to over $4.5 billion, a $500 million increase from April’s forecast. The MI300 forecast was by far a very powerful a part of the report, and the stock’s response shows that investors are comfortable with the magnitude of the rise, despite the fact that there have been rumors on Wall Street that some influential players were expecting a $5 billion forecast. AMD sold off after its first-quarter earnings report, largely because its MI300 sales forecast fell in need of lofty expectations. Meanwhile, the market seems to have developed a more realistic view of what AMD can do, especially considering the corporate has encountered supply constraints while trying to satisfy demand. Investor expectations have actually also fallen within the wake of the stock’s recent sell-off. On Tuesday’s earnings call, CEO Lisa Su said AMD has made progress on the supply of the MI300, but expects supply to stay tight through 2025. That comment echoes what we have heard from its fundamental competitor within the AI chip market, longtime club holding Nvidia. In each cases, demand outstripping supply is the definition of a high quality problem. Nvidia stays the dominant player in AI chips, but AMD continues to carve out a distinct segment on this fast-growing market. Su also spoke positively about AMD’s partnership with club holding Microsoft, a significant buyer of MI300 chips. Among the highlights, Su said Microsoft has expanded its use of the AI chips for certain software applications, including the Teams messaging app. For its part, Microsoft reiterated its forecast Tuesday evening that capital spending will probably be higher in fiscal 2025 than in fiscal 2024 — and AI chips make up a giant a part of that spending. The second a part of our thesis on AMD is the recovery in PC sales, driven by each the overall must upgrade PCs purchased in the course of the Covid-19 pandemic and the adoption of AI-powered machines. The momentum within the PC business continued within the second quarter, together with rosy comments in regards to the second half of the 12 months. Su said AMD expects its PC segment to experience more seasonality than normal as machines with the brand new “Zen 5” processors come to market. “That’s the main reason we’re seeing over-seasonality. The AI PC element is certainly an element of it, but there’s just the general refresh,” Su said. Su suggested AI PCs will probably be a much bigger contributor to growth going forward. “By 2025, you’ll see AI PCs in a broader price range, which will also open up more opportunities,” she said. Despite the positive results, we’re lowering our price goal by $10 to $200 to reflect the lower multiples the market is giving technology and semiconductor stocks. We are reiterating our rating of 1. We look ahead to hearing more about Su’s quarter on CNBC Wednesday morning. Jim Cramer will interview her on “Squawk on the Street” before the opening bell. AMD YTD Berg AMD’s stock performance year-to-date Quarterly Results Data center revenue of $2.83 billion beat estimates and greater than doubled year-over-year, driven by the “steep rise” in AI chip sales, Su said. Revenue also rose 21% in comparison with the January-March period — a healthy sequential increase. The traditional a part of AMD’s data center business — selling traditional server processors — continues to perform well, taking market share from incumbents, executives said. Although AMD didn’t name the corporate, it has been stealing market share from Intel for years. AMD’s data center business now accounts for nearly 50% of companywide revenue, up from 37% within the fourth quarter of 2023. AMD’s customer segment – which sells processors for desktop and laptop computers – continued to get better from the fallout of the Covid-19 pandemic, posting revenue of $1.49 billion within the quarter. That’s up 49.5% year-over-year and barely higher than the $1.44 billion analysts expected. On the opposite hand, AMD’s gaming division – which makes chips for game consoles and 3D graphics – was even weaker than expected, falling 59% year-over-year to $648 million. While that is a good steeper year-over-year decline than the 48% drop in the primary quarter, management had made it clear that further losses were expected here given the weakness in console sales. Embedded — the segment that houses Xilinx, which AMD acquired in 2022 — beat a low mark with better-than-expected revenue of $861 million. The unit posted a 41% year-over-year decline as customers covering a spread of end markets from industrial to automotive to telecom continued to work through excess inventory. But revenue rose 2% sequentially, in keeping with management’s expectations of a gradual recovery within the second half of the 12 months. Su reiterated that expectation on Tuesday, noting that order backlog improved within the quarter. Forecast AMD expects third-quarter revenue of about $6.7 billion, plus or minus $300 million. Analysts had been forecasting third-quarter revenue of $6.6 billion, in keeping with FactSet. Third-quarter gross margins are expected to be 53.5%, a slight improvement from the previous quarter and in keeping with Wall Street expectations. By segment, Su said the gaming division will decline double-digits, while the embedded division is anticipated to grow single-digits. Unsurprisingly, the information center will probably be the most important driver of revenue within the third quarter, Su said, followed by the client segment. Within the information center, sales of each AI chips and traditional server chips will grow within the third quarter, Su said. As mentioned, AMD raised its forecast for AI chip revenue in 2024 to over $4.5 billion, a $500 million increase from the forecast it gave in April. (Jim Cramer’s Charitable Trust is long AMD. A full list of stocks might be found here.) As a subscriber to CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. When Jim has discussed a stock on CNBC, he waits 72 hours after the trade alert is issued before executing the trade. THE INFORMATION REGARDING INVESTING CLUB SET FORTH ABOVE IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY AND OUR DISCLAIMER. NO FIDUCIARY OBLIGATION OR DUTY EXISTS AND WILL BE CREATED BY RECEIVING INFORMATION RELATED TO INVESTING CLUB. NO PARTICULAR RESULT OR PROFIT IS GUARANTEED.
Lisa Su, Chairman and CEO of Advanced Micro Devices (AMD), delivers the opening speech at Computex 2024, Taiwan’s leading technology exhibition, in Taipei on June 3, 2024.
I-Hwa Cheng | Afp | Getty Images
modern micro devices proved on Tuesday that the corporate is an emerging force within the AI chip race as its data center business contributed to better-than-expected quarterly results.
