AMD surges after more than doubling data center revenue, boosting outlook in 1st-quarter earnings report

AMD CEO Lisa Su
AMD CEO Lisa Su

  • AMD posted net income of $555 million on revenues of $3.45 billion in its Q1 earnings report.
  • The company also doubled data center revenue and increased its revenue growth expectations.
  • CEO Lisa Su said AMD is still struggling with the chip shortage, but has seen improvements recently.
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Advanced Micro Devices stock surged on Wednesday after the company posted solid first-quarter earnings figures and raised its full-year revenue growth forecast on Tuesday.

AMD turned in first-quarter net income of $555 million on revenues of $3.45 billion.

Diluted earnings per share hit $0.45 compared to $0.14 in the same period a year ago.

The company also more than doubled its all-important data center revenue in the quarter, according to comments from its CEO, Dr. Lisa Su. The data center beat comes after Intel said its data-center sales dropped by 20% last week.

“Our business continued to accelerate in the first quarter driven by the best product portfolio in our history, strong execution, and robust market demand,” Dr. Lisa Su said.

“We had outstanding year-over-year revenue growth across all of our businesses and data center revenue more than doubled. Our increased full-year guidance highlights the strong growth we expect across our business based on increasing adoption of our high-performance computing products and expanding customer relationships,” the CEO added.

AMD’s computing and graphics segment revenue hit $2.10 billion in the first quarter, up 46% year-over-year due to Ryzen processor and Radeon graphics sales growth.

Management also revealed a positive outlook for 2021 in the first-quarter earnings release.

AMD now expects revenues to rise 50% from a year ago, implying a full-year revenue figure of $14.64 billion, compared with its previous forecast for a 39% revenue jump.

The CEO also addressed the semiconductor shortage that has been plaguing tech companies for the past few quarters in the earnings report.

“The entire semiconductor supply chain is very, very tight,” Su told analysts on the quarterly conference call. “That being said, we’ve been working very closely with our supply chain partners. We have seen improvements that have led to the improved full-year guide.”

Analysts remain mostly bullish on shares of AMD. The company boasts 29 “buy” ratings, 13 “neutral” ratings, and just two “sell” ratings.

Most recently, Raymond James tagged the firm with an “outperform” rating and a $100 price target citing its “durable technical advantage” over Intel on April 15.

AMD shares traded up 2.56% as of 9:48 a.m. ET on Wednesday.

AMD chart 2
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3 reasons to be bearish on Intel despite a new CEO and a $20 billion semiconductor production plan, according to Bank of America

Intel employees
Intel employees.

  • BofA analysts reiterated their “underperform” rating and $62 price target for Intel on Friday.
  • Intel turned in earnings results on Thursday and BofA analysts weren’t impressed by the lack of sales growth and falling margins.
  • BofA says investors would be better off buying shares of Intel rival Advanced Micro Devices.
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Bank of America gave three reasons for investors to be bearish about Intel despite the addition of Pat Gelsinger as CEO and a $20 billion move into the semiconductor production business on Friday.

In a note to clients, analysts led by Vivek Arya reiterated their “underperform” rating and $62 price target on shares of Intel.

The analysts said that the Santa Clara, California-based company has been hurt by rising competition from Advanced Micro Devices (AMD) and others. The team expects “muted” earnings growth over the next three years.

Arya and his team highlighted three specific reasons investors might want to consider alternatives to Intel shares moving forward.

Lack of sales growth

The first reason BofA believes Intel could struggle moving forward is that the firm was unable to grow sales in “a year when PC units and cloud Capex are growing 14-15%.”

Intel reported revenues of $19.7 billion for the first quarter of 2021, a 0.7% drop year-over-year, in Pat Gelsinger’s first earnings report as CEO on Thursday.

BofA’s analysts said that much of the quarterly drop in revenues was due to rising competition from AMD as well as a move to “insourcing” from Apple and Amazon.

Falling gross margins

Intel’s gross margins fell to 55.2% in the first quarter of 2021 compared to 60.6% in the same quarter last year. According to BofA’s analysts, that’s the lowest the firm’s margins have been since 2009.

Arya and his team said that they believe gross margins in the second half of 2021 will be even lower as well, at 55%-55.5%, due to rising depreciation expenses and incremental structural headwinds.

A potentially unprofitable move into semiconductor production

Finally, BofA said that Intel’s move into the foundry business (semiconductor production) is likely to be an expensive and unprofitable transition.

The foundry business is known for having lower margins, and BofA says the company’s limited experience and potential conflicts of interest could lead to poor results.

Intel has also been forced to lower buybacks in order to build infrastructure for its future foundry volumes, creating another headwind to EPS.

The BofA analysts concluded by saying they prefer Intel’s competitor AMD for investors in the coming years.

“We continue to prefer Buy-rated Advanced Micro Devices, which should grow 37% this year and can capitalize on INTC’s process technology missteps and foundry distraction, especially as AMD continues to gain customer share with its own consistent execution and solid pipeline,” the BofA team wrote.

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AMD could rise 19% due to its durable technical advantage over Intel, Raymond James says

AMD CEO Lisa Su
AMD CEO Lisa Su

  • Raymond James initiated coverage on AMD Thursday with an “outperform” rating and a $100 price target.
  • Analysts led by Chris Caso said the company has a “durable technical advantage” over Intel.
  • The team used a 36x multiple on 2022 EPS estimates to arrive at their price target.
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Raymond James initiated coverage on Advanced Micro Devices (AMD) with an “outperform” rating and a $100 price target on Thursday.

The price target represents a potential 19% jump from Thursday’s intraday highs.

In their note to clients, analysts led by Chris Caso cited AMD’s “durable technical advantage” over Intel and growing server business as key reasons for their bullish view.

The analysts said that Intel’s decision to stick with internal manufacturing has cemented AMD’s technology lead through 2024 and that the stock’s recent pullback is a buying opportunity.

“We think the stock’s pullback has been driven by improved sentiment that Intel will solve their manufacturing challenges, which will reverse AMD’s successes. We’re taking the other side of that view,” Caso and his team wrote.

“Now that Intel has committed to internal manufacturing, we think it’s unlikely that Intel ever regains a transistor advantage vs. AMD,” Caso added.

Intel announced last month it would double down on its in-house chip manufacturing business with plans to spend $20 billion on two new Arizona factories. The Santa Clara, California-based firm also plans on opening up its chip foundries to other companies so they can build their own designs.

The move came after VMWare’s Pat Gelsinger took over as CEO in January.

Raymond James analysts explained how Intel’s move to stick with its 7 nanometer(nm) process for internal manufacturing while AMD is moving to Taiwan Semiconductor’s 5nm process next year-and likely to 3nm by 2024-is a big problem for the firm.

According to the analysts, the decision means AMD will hold a transistor advantage over Intel for at least the next three years.

Caso and his team also discussed cloud market share growth in their note to clients, calling it an important driver for AMD moving forward.

The analysts said the launch of AMD’s ‘Milan’ chip for data centers represents the firm’s first move into the enterprise server market and that a number of server OEMs are launching AMD designs for the first time this year. The team of analysts expects 59% year-over-year growth in the segment.

As far as risks to AMD’s rise, Raymond James said a slowdown in PC sales could hurt revenue growth and that they “believe pandemic PC purchases pulled forward demand for several years.”

However, the investment bank’s analysts noted that AMD’s increasing market share of PC sales and enterprise servers will mitigate much of the demand drawdown.

Finally, Raymond James expects 2022 earnings per share to hit $2.81, 12% ahead of the Street’s consensus estimates. The analysts used a ~36x multiple on their 2022 EPS estimate to reach their $100 price target.

The team said they believe much of the bear case around AMD is due to fears of Intel’s resurgence, but they “don’t expect there to be much to catalyze those fears for a long while.”

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Intel and AMD drop after Nvidia unveils plans to sell new CPU processors

Nvidia CEO Jensen Huang
  • Nvidia on Monday unveiled plans to create and sell its own CPU processors, making it a direct competitor with Intel and AMD.
  • Nvidia has historically focused on manufacturing GPU processors, also known as video cards.
  • Shares of Nvidia jumped as much as 4% after the news, while Intel and AMD both fell about 4%.
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Nvidia announced plans to manufacture its own CPU processor, transforming the company into a direct competitor of both Intel and AMD.

The news sent shares of Nvidia surging by as much as 4% on Tuesday, while both Intel and AMD fell by about 4%. Nvidia has historically manufactured premium GPU processors, also known as video cards, with its target customer being PC gamers.

But now, Nvidia is expanding its reach with an Arm-based data center CPU named Grace that delivers a big performance leap for systems that are training AI models, according to the announcement. Nvidia acquired Arm Holdings last year for $40 billion, though the deal has not yet closed.

“The result of more than 10,000 engineering years of work, the NVIDIA Grace CPU is designed to address the computing requirements for the world’s most advanced applications, including natural language processing, recommender systems and AI supercomputing,” Nvidia said.

Intel is the world’s largest maker of data center CPUs, but increased competition has spurred the company to make big multi-billion dollar investments into its manufacturing capabilities.

Grace is expected to be launched in 2023 and will be used in the build of new supercomputers from Swiss Supercomputing Center and the US Department of Energy’s Las Alamos National Laboratory.

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