Advanced Micro Devices Q2 Results Show Impressive Execution on Product Roadmap

AMD Stock at a Glance

• Current Morningstar Fair Value Estimate: $130
• AMD Stock Star Rating: 4 Stars
• Economic Moat Rating: Narrow
• Moat Trend Rating: Stable

AMD Earnings Update

Advanced Micro Devices (AMD) reported its 11th consecutive quarter of double-digit revenue growth primarily due to robust server sales and inclusion of recently acquired Xilinx. We are most impressed with the firm’s execution on its product roadmap, particularly with its EPYC server CPU family that continues to gain share at Intel’s expense. Management reiterated its prior full-year guidance for top-line growth of 60%, which includes Xilinx as well as continued share gains across its PC and server CPU products. Despite the strong results, we think the market was expecting an increase in management’s full-year revenue guidance based on Intel’s weaker-than-expected second-quarter results and guidance.

Maintaining AMD Stock’s Fair Value Estimate

Shares of narrow-moat AMD trade at an attractive discount relative to our unchanged $130 fair value estimate.

AMD’s second-quarter sales grew 70% year over year to $5.9 billion. We estimate revenue grew 42% year over year when excluding Xilinx sales. Data center revenue grew 83% year over year to nearly $1.5 billion, which we attribute primarily to continued EPYC server CPU share gains. Based on Intel’s delay of its Sapphire Rapids server CPU products, we think AMD’s share gains will accelerate in the near term. Client computing sales were up 25% year over year thanks to a richer mix of laptop processors. Management now expects the overall PC market (in units) to be in the midteens, which is consistent with our assumptions.

We Expect AMD’s GPU Sales to Slow

Gaming sales grew 32% year over year, as higher game console sales were partially offset by lower GPU sales. We expect GPU sales to decline sequentially over the next few quarters following the decline in cryptocurrency prices and associated mining demand for GPUs. Non-GAAP gross margins rose 140 basis points sequentially to 54% thanks to higher data center sales and margin-accretive Xilinx sales.

Management expects third-quarter sales to be at a midpoint of $6.7 billion, led by continued strength in server CPU sales.

This article was updated to correct Advanced Micro Devices’ fair value estimate to $130 per share from $24.