What a difference a quarter made for Advanced Micro Devices, Inc. (NASDAQ:AMD). Three months ago, AMD stock was spiraling down after investors reacted poorly to first-quarter earnings. for the first quarter. But shares are up 7% in Tuesday’s after-hours trade after the company posted a Street-beating quarter that included an unexpected profit.
Advanced Micro already had made back all of its post-earnings losses, as optimism slowly built into the quarter. That optimism has been rewarded — and AMD may be on track to clear $16 for the first time in almost a decade.
Q2 earnings probably aren’t quite enough to convert the bears. But those bullish on AMD stock surely will be celebrating the report — and driving a nice bounce in shares during Wednesday’s regular trading session.
A Nice Q2 Beat For Advanced Micro Devices
It wasn’t as if AMD’s first-quarter report was all that bad. Rather, expectations might have been a bit too high. Combined with what looked like weak gross margin guidance for the second quarter, investors sold off AMD stock, which fell 24% on the news at the time.
There won’t be a repeat performance after Q2.
Advanced Micro Devices posted revenue of $1.22 billion, up 18% year-over-year and well ahead of consensus estimates of $1.16 billion. AMD even posted a profit on a non-GAAP basis, with earnings of 2 cents better than expectations for a breakeven quarter.
The news looks good beyond the headline numbers. AMD raised full-year revenue guidance to “mid to high teens” on a percentage basis. Analysts were expecting a less than 13% increase. Non-GAAP gross margin is guided to 34% for the year, which implies improvement in the back half. That should assuage some of the concerns driven by Q1 guidance and Q2 performance.
Notably, the strength in the quarter came from exactly the areas long touted by the bulls. Computing and Graphics segment revenue rose a whopping 51% year-over-year. That growth was attributed to the new Ryzen line and to GPU sales.
Success on both fronts supports a key pillar of the bull case. Namely, AMD finally is a legitimate competitor to Intel Corporation (NASDAQ:INTC) in CPUs and to Nvidia Corporation (NASDAQ:NVDA) in GPUs.
If the revenue strength wasn’t impressive enough, the company’s CFO commentary noted that average selling prices increased “significantly” year-over-year. That calms concerns that AMD might have decided to trade pricing — and margin — for market share. Instead, it looks like Ryzen is competing on its own.
And with the company’s Epyc line contributing revenue for the first time in Q2, the bull case for Advanced Micro shares clearly is strengthened by the Q2 report.
Is AMD Stock A Buy?
No doubt, earnings look bullish for the chipmaker. But I’m not sure they quell the longer-term concerns surrounding AMD.
Most notably, the stock still has a rather high valuation – now over 20x the company’s 2020 EPS target. And I still question whether Ryzen alone can support that valuation.
But those are long-term concerns. Tonight, AMD stock holders and employees will enjoy the Q2 report. They should — it was an impressive quarter for Advanced Micro Devices.
As of this writing, Vince Martin did not hold a position in any of the aforementioned securities.