Stock Forecast: AMD’s New Range of Ryzen Pro Processors Coupled with Outstanding Q1 Results Are Important Weapons Over Intel

 

This article was written by Esther Hanon, a Financial Analyst at I Know First.

[Source: Wikimedia Commons, May 15th, 2018]

“The first quarter was an outstanding start to 2018 with 40 percent year-over-year revenue growth. PC, gaming and datacenter adoption of our new, high-performance products continues to accelerate. We are excited about our long-term roadmaps and focused on delivering sustained revenue growth and profitability.”

–Dr. Lisa Su, President and CEO of AMD

GPU-Equipped Ryzen Pros Give AMD What It Needs to Conquer the Corporate Desktop

Integrated graphics mean that AMD’s chips can now go head to head with Intel’s

Summary:

  • AMD published their Q1 2018 results crushing analyst estimates on earnings, revenue and guidance.
  • Revenues increased 40% year-over-year.
  • Cryptocurrency miners still bought many Radeon discrete GPUs, and Ryzen APUs and processors are also finding more customers.
  • My bullish stance on AMD resonates with I Know First’s algorithm current bullish long term forecast.

Advanced Micro Devices Inc. (NASDAQ: AMD) relieved concerns about its recent growth Wednesday, April 25th by producing more profit than expected and projecting that revenue growth would accelerate, sending shares higher in after-hours trading. AMD stock gained about 9% after closing with a 3.8% decline at $9.71. Shares have declined 28% in the past year, as the S&P 500 index has gained 10.3%.

[Source: Yahoo Finance, May 15th, 2018]

Q1 2018 Highlights: 

AMD announced their Q1 results, which were as follows:

  • Revenue for the first quarter of 2018 of $1.65 billion, up 40% year-over-year and 23% quarter-over-quarter , driven primarily by high revenues in the Computing and Graphics segment.
  • Gross margin was 36 percent, up 4% year-over-year and 2% quarter-over-quarter.  The gross margin percentage increase was driven by a greater percentage of revenue from RyzenTM, RadeonTM and EPYCTM products.
  • On a GAAP basis, operating income was $120 million compared to an operating income of $11 million a year ago and an operating loss of $2 million in the previous quarter.
  • Net income of $81 million compared to net losses of $33 million a year ago, and $19 million in the prior quarter.
  • Diluted earnings per share of $0.08, compared to losses per share of $0.04 a year ago and $0.02 in the prior quarter.

AMD reported first-quarter net income of $81 million, or 8 cents a share, on sales of $1.65 billion, up about 40% from $1.18 billion a year ago. After adjusting for stock-based compensation and other factors, the company claimed earnings of 11 cents a share, up from a break-even performance a year ago. The company guided for even stronger revenue growth in the current quarter. AMD predicted revenue of $1.68 billion to $1.78 billion, while analysts were forecasting $1.58 billion. AMD said that would mean 50% revenue growth.  The solid growth came from the division responsible for central processing units designed for personal computers and GPUs, with AMD reporting that average selling prices for both GPUs and CPUs increased year-over-year and quarter-over-quarter. That segment collected revenue of $1.12 billion, destroying the average analyst estimate of $926 million with a year-over-year growth rate of 95%.

Ryzen Pro and Radeon Vega Graphics are coming, with the goal of stealing a slice of Intel’s pie in the business-laptop market.

AMD continued to return innovation and excitement to the PC market with the introduction of new consumer-focused desktop processors. AMD introduced the first AMD Ryzen desktop APUs, combining the high-performance Radeon “Vega” graphics architecture with revolutionary “Zen” CPU cores on a single chip. AMD also delivered the next products in the Company’s strong multi-generational roadmap with the launch of its 2nd Generation Ryzen desktop CPUs just over one year after bringing the first Ryzen processors to market. The new 2nd Generation Ryzen processors can deliver up to 15% higher gaming performance compared to 1st Generation Ryzen processors, with the Ryzen 7 2700X processor delivering the highest multiprocessing performance available on a mainstream desktop PC. Adoption of AMD products for the datacenter continued with new AMD EPYC processor-powered platforms and deployments.

AMD brought the powerful “Zen” architecture to a variety of new embedded markets with the launch of EPYC Embedded and Ryzen Embedded processors. AMD released new Radeon Software Adrenalin Edition updates to optimize the performance of some of the most popular PC games and improve the eSports experience for Radeon graphics card owners. AMD and Microsoft announced support for Radeon FreeSync technology in Microsoft’s Xbox One S and Xbox One X consoles, bringing the exceptional tear-free gaming experience to a broader base of gamers.

However, shares have been pressured by concerns that AMD’s revenue gains were driven by sales of graphics processing units for crypto-mining purposes. GPUs are useful for mining younger cryptocurrencies like ether, but many believe that ether and others will soon move past the point where GPUs are cost-efficient and miners will move to other chips, such as ASICs. AMD, however, reported much stronger sales than expected in the first quarter and said that crypto-mining was 10% of overall revenue, a larger portion of sales than AMD had claimed in previous quarters. While executives admitted that they expect a “modest decline” in crypto-related revenue next quarter, the company’s revenue forecast for the second quarter exceeded expectations despite factoring in that decline.

The company’s CPU business has been driven by its Ryzen family of chips for PCs, which includes ramping laptop chips and new second-generation desktop versions that launched this month. AMD hopes to step up its competition with Intel Corp. in PCs while also challenging Nvidia Corp. in the high-performance gaming segment of the market, one of the few potential growth areas in a flagging sector.

[Source: AMD]

“AMD is showing incredible growth with Ryzen, and that appears to be more than enough to counter any reduction in the revenue related to cryptocurrency sales,” said Ryan Shrout, principal analyst at Shrout Research. AMD’s other segment was less productive, as enterprise embedded and semi-custom chips produced $532 million in revenue. That was a 12% decline from last year and lower than analysts’ average expectations of $624 million. That segment includes one of AMD’s biggest bets, the Epyc server chip. AMD abandoned the server market a few years ago, but has made a renewed push with its Epyc line since rival Nvidia has shown the potential for sales of graphics processing units for driving machine learning. Most analysts believe that Epyc gains should come in the second half of the year, however.

“I expect AMD to show even more gains next quarter based on channel fill of second-generation Ryzen desktop CPU, increased distribution of Ryzen mobile notebooks and the continued ramp of Epyc server deployments,” Moor Insights and Strategy analyst Patrick Moorhead said in an email after AMD’s results.

 

[Source: MarketWatch, May 15th, 2018]

Conclusive Thoughts:

The future performance of Epyc and Ryzen would be even more important if there is a slowdown in crypto-related sales, Mizuho analyst Vijay Rakesh predicted ahead of the report. ”If there is a crypto-mining slowdown in 2H with declining crypto pricing, AMD’s Epyc sales may need to ramp substantially to offset the slowdown,” Rakesh wrote.

Chief Executive Lisa Su, while admitting that crypto-related sales should decline, believes that they will continue to be a part of AMD’s sales. While a previous crypto-mining boom for the company led to a flood of graphics cards on the secondary market, she said in Wednesday’s conference call that the same thing would not happen this time because of the maturity of the technology. “I do think the blockchain infrastructure is here to stay,” Su said. “I think there are numerous currencies, there are numerous applications that are using the blockchain technology. That being the case, we do see a bit of volatility and that’s why we are putting into our forecast for the second quarter and the second half a little bit lower blockchain demand. But that’s more than made up for by the other new products and the way the new products are ramping in the business.”

Ultimately, AMD’s outlook statements are based on current expectations. For the second quarter of 2018, AMD expects revenue to be approximately $1.725 billion, plus or minus $50 million, an increase of 50 percent year-over-year, and non-GAAP gross margin of approximately 37 percent. I have a bullish stance on AMD, as a result of their aforementioned continued success and advancement. My bullish stance on AMD resonates with I Know First’s algorithm current bullish long term forecast.

Analyst Recommendations:

According to analyst recommendations from Yahoo Finance, the current consensus is a “Hold” in AMD Stock, with 5 advising a “Strong Buy”, 5 advising a “Buy”, 17 advising a “Hold” and 4 advising a “Underperform”.

I Know First Bullish Forecast for AMD:

The I Know First algorithm is currently bullish for AMD, as seen in the below forecast. The signal is 260.42 for the 1-year forecast with a predictability of 0.77  — a high value showing significance in the strength of the forecast. It means it has a long track record of accurate one-year forecasts for AMD’s stock.

I Know First Algorithm Heatmap Explanation:

The sign of the signal tells in which direction the asset price is expected to go (positive = to go up = Long, negative = to drop = Short position), the signal strength is related to the magnitude of the expected return and is used for ranking purposes of the investment opportunities.

Predictability is the actual fitness function being optimized every day and can be simplified explained as the correlation-based quality measure of the signal. This is a unique indicator of the I Know First algorithm. This allows users to separate and focus on the most predictable assets according to the algorithm. Ranging between -1 and 1, one should focus on predictability levels significantly above 0 in order to fill confident about/trust the signal.

Past I Know First’s Success With AMD:

I Know First has made accurate predictions on AMD in the past, such as its 1 year bullish article published on March 29th, 2018. In the article, we discussed AMD continuing the positive growth trend and the potential for future growth of product sales. Since the article’s release and over the span of one month, AMD stock jumped 34.94% supporting the accuracy of the I Know First algorithm in predicting future stock movements for many time horizons. This stock’s market trend forecast has a signal score of 109.89, a score that is above 100 which shows strength. I Know First also has a very high 0.8 predictability score – it means it has a long track record of accurate one-year forecasts for AMD’s stock.

This bullish forecast for AMD was sent to I Know First subscribers on March 29th, 2018.

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About Advanced Micro Devices Inc.:

Advanced Micro Devices, Inc. (NASDAQ: AMD), incorporated on May 1, 1969, is a global semiconductor company. The Company is engaged in offering x86 microprocessors, as standalone devices or as incorporated into an accelerated processing unit (APU), chipsets, discrete graphics processing units (GPUs) and professional graphics, and, server and embedded processors and semi-custom System-on-Chip (SoC) products and technology for game consoles. The Company’s segments include the Computing and Graphics segment, and the Enterprise, Embedded and Semi-Custom segment. The Computing and Graphics segment primarily includes desktop and notebook processors and chipsets, discrete GPUs and professional graphics. The Enterprise, Embedded and Semi-Custom segment primarily includes server and embedded processors, semi-custom SoC products, development services, technology for game consoles and licensing portions of its intellectual property portfolio. The Company sells its products through its direct sales force and through independent distributors and sales representatives in both domestic and international markets. Its microprocessor customers consist primarily of original equipment manufacturers (OEMs), original design manufacturers (ODMs), system builders and independent distributors in both domestic and international markets.