Advanced Micro Devices (AMD) has been one of the biggest success stories in the semiconductor space over the last five or so years. The company’s various offerings expose it to growth in data centers, gaming, and beyond.
AMD reported another stellar year of revenue and earnings growth in late January. But AMD provided a downbeat near-term outlook as its PC and gaming segments take a hit, which has sent its earnings estimate revisions in the wrong direction.
AMD’s processor offerings service the gaming industry, as well as data centers, and the PC market. Its GPUs compete against the likes of Nvidia (NVDA) and other gaming giants and its CPUs challenge industry power Intel (INTC). The firm’s ability to expand beyond the PC market into gaming and servers helped it catapult its sales as it rides multiple secular trends.
AMD revenue soared from $4.3 billion in FY16 to $23.6 billion in 2022. This run included 45% YoY expansion in 2020, 68% in FY21, and another 44% in FY22. AMD did, however, guide lower for 2023, with its first quarter 2023 revenue project to dip 10% YoY, based on Zacks estimates as it faces hard to compete against periods. The firm said that its “Client and Gaming segments are expected to decline, partially offset by Embedded and Data Center segment growth.”
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AMD’s FY23 revenue is projected to dip slightly and then bounce back in 2024. Meanwhile, its adjusted earnings are expected to tumble -50% YoY in the first quarter and -41% in Q2 to help its fiscal 2023 total drop by -14% from $3.50 a share to $3.01 per share.
AMD’s recent downward earnings revisions help it land a Zacks Rank #5 (Strong Sell) right now and are part of a wider negative trend as the historically cyclical industry faces ongoing headwinds amid a slowing economy. AMD also lands an overall “D” VGM grade, with an “F” for Value and a “D” for Growth at the moment.
Despite the guidance and near-term outlook, AMD stock is still up roughly 30% YTD as beaten-down tech and chip stocks storm back, which includes Nvidia’s 60% run higher. Therefore, a pullback could be in order as the worry is the Fed isn’t done raising rates and the wider earnings picture might fade for the back half of 2023.
AMD stock is still down nearly 50% from its highs and it boasts solid long-term potential. But now might be time for near-term investors to stay away from AMD given the huge run it’s already made over the last two months and the possibility for management to provided lower guidance down the road.
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