AMD (NASDAQ:AMD) will announce its earnings for the third quarter next week. Keep in mind that AMD stock has been trading in a stubborn range, between about $28 to $31 or so. So with the earnings report, we might get a breakout, in fact, we may already be seeing this as JP Morgan has upgraded the shares.
Although, for the year so far, the performance has been standout. AMD stock is up about 74%. By comparison, Intel (NASDAQ:INTC) is up about 13% and Broadcom (NASDAQ:AVGO) has gained 17%.
OK then, what can we expect this quarter from AMD? Well, let’s take a look. Wall Street is forecasting that revenues will come in at $1.81 billion, up 9.4% on a year-over-year basis, and earnings are expected to hit 18 cents a share, up from 13 cents share.
For the most part, the expectations seem fairly reasonable. But then again, with the global economy slowing down and China having problems, it could still be a challenge for AMD to beat on both the top and bottom lines.
Regardless of this, the company remains busy. Here’s a sampling of some of the important developments during the quarter:
- Dell Technologies (NYSE:DELL) has agreed to design five versions of the Dell EMC PowerEdge server using the 2nd Gen AMD EPYC processor. Nokia (NYSE:NOK) and IBM (NYSE:IBM) have also agreed to use the chip for their cloud platforms.
- Microsoft (NASDAQ:MSFT) announced that it will use AMD Ryzen processors for its Surface 3 device. This was certainly a big loss for rival INTC. In fact, the move from MSFT may actually spur Apple (NASDAQ:AAPL) to consider using AMD processors for its MacBook Air computers.
- The AMD Radeon RX 5500 series was shown to be 37% faster than the average for its competition and has proven effective for use cases like eSports games. There have also been new deals with companies like Acer, Lenovo and HP (NYSE:HPQ).
- AMD announced the global availability of its Ryzen PRO 3000 Series processor. The chip will be used by companies like HP and Lenovo for their enterprise desktops.
The Big Picture and AMD Stock
While the global economic sluggishness is worrisome, there are off-setting factors. One is that AMD is poised to benefit from the secular trend towards cloud computing, which appears to still be in the early phases.
Currently, the market is dominated by INTC, which generates about $29 billion annually from its data center business.
What’s more, AMD continues to innovate at a relentless pace. The CEO, Lisa Su, has been shown to be a capable leader who has a knack for focusing on the most effective parts of chip technologies.
The result is that AMD is continuing to gain market share. For example, according to a report from Mercury Research, the company had 17.1% of the CPU market, up from 12.3% a year ago.
The fact is that customers not only want better solutions in terms of speed, reliability and energy efficiency but they also want an alternative to INTC. Relying too much on this chip giant can be a big risk, especially as cloud solutions become more prevalent with mission-critical applications.
Bottom Line on AMD Stock
Perhaps the biggest knock against AMD stock is the valuation. Note that the shares are trading at a forward price-to-earnings ratio of about 27X, which is definitely on the high side.
But again, the company is targeting a massive market opportunity with the cloud (as well as for gaming and Artificial Intelligence). Thus, in light of this, a premium is well deserved as there could be solid growth for multiple years.
Tom Taulli is the author of the book, Artificial Intelligence Basics: A Non-Technical Introduction. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.
