AMD's Negative Preliminary Results Don't Deter Our Long-Term Positive Outlook; Shares Undervalued

Advanced Micro Devices announced preliminary third-quarter results after the Oct. 6 close that included revenue of about $5.6 billion, well short of management’s original guidance of $6.7 billion. The primary driver of the shortfall was weakness in the client PC segment (down 53% sequentially and 40% year over year to $1 billion). We had been anticipating a slowdown in PC sales following robust demand in recent years from COVID-19-induced work- and learn-from-home trends. However, AMD had been gaining market share at Intel’s expense, which had enabled it to grow despite a weaker overall PC market. After incorporating the softer third-quarter results and lowering our fourth-quarter revenue assumptions, we are reducing our fair value estimate for narrow-moat AMD to $115 per share from $130.