Advanced Micro Devices Inc. has become a bigger threat to Intel Corp. as ever, and the question now is how much more market share the smaller company can snatch before the larger one can right its own ship.
It is scheduled to report second-quarter earnings on Tuesday after the markets close, but its forecast is likely to outweigh the results. Both Intel INTC,
and Texas Instruments Inc. TXN,
it offered weaker-than-expected forecasts in its earnings reports, overshadowing the big earnings.
For More Information: Analyst Reactions to Intel Earnings and Texas Instruments Earnings
The center of AMD’s results will likely be data center sales, after Intel reported a 20% drop in critical data center sales three months ago, while AMD’s more than doubled. Intel on Thursday reported a 9% drop better than previously feared, and investors will be looking for clues as to whether Intel was able to control the competition a bit.
Wall Street, on average, expects AMD to report $ 1.44 billion in enterprise, embedded and semi-custom sales, the segment that contains chips for data centers and game consoles, nearly triple what the maker of chips a year ago. The only lack of clarity in those numbers is AMD’s insistence not to separate data center sales from game sales.
See also: Intel seems to be feeling the competitive heat from AMD
Currently, AMD is slightly more than half the size of Intel in terms of market valuation ($ 111.96 billion vs. $ 215.02 billion), while Nvidia Corp. NVDA,
It dwarfs the combined market capitalization of both at $ 486.4 billion.
The other Wall Street concern seems to be how many restrictions TSM, a silicon wafer supplier, Taiwan Semiconductor Manufacturing Co., imposes.
will hamper sales of finished AMD products.
“We expect AMD’s July report to be constrained by wafer availability,” Raymond James analyst Chris Caso said in a recent note. “While there is a potential for some benefits given the favorable trends, AMD’s obligations to support [original equipment manufacturers] as well as a newly won commercial PC [stock-keeping units] limit AMD’s ability to redirect more supply to the server. “
Caso said those supply constraints and potential participation gains will help insulate AMD from concerns that PC sales are peaking and will soon decline.
Lastly, the company moved one step closer to closing its $ 35 billion acquisition of Xilinx Inc. XLNX,
like UK and EU regulators signed the agreement at the end of June, following the approval of the shareholders of both companies in April. All that’s left is for China’s regulators to sign the deal. Additionally, during the quarter, AMD announced its first major share buyback plan in company history at $ 4 billion, compared to a $ 100 million share buyback over the years.
Read: The potato chip crisis continues to advance, but one sector could be reserved for relief
What to expect
Profits: Of the 33 analysts surveyed by FactSet, AMD is expected to post adjusted earnings on average of 54 cents per share, compared to 46 cents per share expected at the beginning of the quarter and 18 cents per share reported in the same period last year. Estimize, a software platform that obtains collective estimates from hedge fund executives, brokerages, buying analysts and others, demands earnings of 59 cents per share.
Income: AMD predicted second-quarter sales between $ 3.5 billion and $ 3.7 billion in April, while analysts on average had forecast revenue of $ 3.23 billion at the time. Now 30 analysts, on average, are expecting revenue of $ 3.62 billion, up from the $ 1.93 billion reported in the prior-year quarter. Estimize expects revenue of $ 3.72 billion.
Movement of values: While AMD’s earnings and sales have beaten Wall Street estimates in the past four quarterly reports, the stock has not posted an overnight profit in a year ago, when the stock rose nearly 13%.
AMD shares rose nearly 20% in the second quarter. In contrast, the PHLX Semiconductor Index SOX,
gained 7.1%, the S&P 500 SPX index,
gained 8.2%, and the high-tech Nasdaq Composite Index COMP
rose 9.5%. The stock is about 7% below its closing record of $ 97.25, set on January 11.
What are the analysts saying
Like the Raymond James Case, Bernstein analyst Stacy Rasgon addressed the limitations of wafers.
“While AMD’s stock has stalled somewhat due to concerns about potential limitations, concerns about booming PCs, higher spending, and a potentially more aggressive Intel, the company’s track record and footprint continues to look strong. “Rasgon, who has a Market Performance Rating and Price Target of $ 95 at AMD, wrote.
“While we wait to see if they can make more top-of-the-line improvements from here, it remains imperative that AMD continue to capitalize as Intel enters the transition; We believe that demonstrating that they can maintain the tipping, especially in server engagement (which is now showing acceleration as Milan goes head-to-head with Intel’s lagging Ice Lake) would be an important additional indicator, ”said the Bernstein analyst. .
Jefferies analyst Mark Lipacis also expects AMD to gain more market share in those areas.
“Our checks indicate that its third-generation server CPU, Milan, is ready to take a material share from Intel in the second half of 21, and that its fourth-generation server CPU, Genoa, will be particularly differentiated by its high number of nuclei, ”Lipacis said.
Cowen analyst Matthew Ramsay said AMD has a good two years to capitalize on not only Intel’s turnaround, but also to gain momentum as Nvidia works to bring its new CPU to market.
“Even after raising the 2021 growth guidance to 50% from 37% in the 1Q21 earnings call, we see a rise in numbers due to continued momentum in PC chip sales and upside in shipments of hyperscale and enterprise servers helped in Q4 / Q1 by Intel’s latest delay at Sapphire Rapids, ”Ramsay said. “While Sapphire’s slight delay is not too concerning with initial shipments sliding from 4Q21 to 1Q22, we believe it could drive some incremental shipments from AMD to hyperscale customers, and now we forecast that core CPU revenue data will increase Q / Q in 4Q21 “.
Of the 38 analysts covering AMD, 22 have buy or overweight ratings, 14 have hold ratings and two have sell ratings, with an average price target of $ 106.73.