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investment paper
Advanced Micro Devices, Inc. (NASDAQ:AMD) stock price rose after the release of 4th quarter earnings reportBut there was really nothing in the report to support such a reaction.Result is However, the Q1 guide is below estimates and will likely need to be lowered going forward, as it has for the rest of the year.
This means that the PER valuation will continue to climb even with little to no growth on the horizon. repeat the proposition of This means that, even in the best case, future returns are likely to be well below the record market cap gains of the past few years.
Background
Nearly a year ago, for $111, I investors warned or AMD’s days of (high) earnings and EPS growth seem to be over. In particular, the Xilinx merger has artificially inflated the actual organic growth, which, combined with the resulting share price inflation, has led to the “Advanced Micro Devices Stock: Advanced Micro Delusion.”
As discussed, at some point AMD will hit a brick wall in every segment. (…) As AMD’s claims unfold, investors may be advised or considered to seek new investment opportunities. For example, in one such proposal, he has one option that competes in exactly the same market as AMD when it comes to turnarounds. Intel.
4th quarter earnings
AMD’s revenue was $5.6 billion, up 16% year over year compared to $4.8 billion in Q4 2021. However, this includes his $1.4 billion in Xilinx revenue, without which his $4.2 billion report would have been down 13%.
Nvidia Corporation (NVDA) Late last year, AMD’s Gaming segment revenue held up relatively well at $1.6 billion, down just 7%. This was mainly due to strong semi-custom sales.
However, the client CPU segment, which can be considered the traditional AMD business, once again performed terrifying with revenue down 51% to $900 million. To AMD’s credit, an argument could be made that the company is more diversified than Intel Corporation (INTC), mitigating the impact and getting this result alone shows frankly terrible performance. This confirms Intel’s explanation of his ongoing PC destocking (the statement is also echoed by AMD).
Finally, data center revenue was $1.7 billion, up 42% year over year, or an increase of about $500 million. Again, while it may come as no surprise that AMD actually posted (strong) growth first, Intel notes a $2 billion decline in data center revenue in Q4. is needed. This means that only his 25% of the revenue Intel lost went to AMD. This is a perspective on AMD’s take-share thesis.
Q1 Guidance
in front Financial results announcementestimates are for a nearly flat streak of performance, and in fact, AMD will return to its all-time high earnings by the end of the year.
However, as a result Intel report, it was clear that this was too optimistic. In fact, the Q1 guide says he’s $5.3 billion at the halfway point with earnings down 10%. His $5.9 billion in revenue in the first quarter of 2022 includes his $6 billion in revenue from Xilinx.
This means that excluding Xilinx, revenue will decline from $5.3 billion in Q1 2022 to $3.9 billion in Q1 2023 (Xilinx revenue will drop from Q4 to $1.4 billion by quarter). By the weak PC segment again.
To put this into perspective, AMD was, and probably still is, seen by most investors as a growth company (in fact, AMD’s official guidance calls for multi-year annual growth of 20%). %). But here it is: AMD will record a significant year-over-year organic revenue decline going forward, only partially buoyed by the relative strength from the Xilinx merger.
long term outlook
Investors could argue that, like Intel, the adjustment in PC inventory is temporary and that the roughly $1 billion in quarterly PC revenue the company saw could easily return.
Nonetheless, this isn’t enough to make AMD an attractive investment for eventual upcycling.
Over time, there may be more growth, for example in a data center, but this may be enough to grow the existing rating (rather than expanding the rating).
Moreover, investors have to admit that AMD’s resurgence was in large part made possible thanks to Intel’s multi-year stumble. Instead, it’s because Intel has regained technology leadership.
Tips for investors
AMD’s growth story has officially come to an end as the legacy AMD business looms over a revenue decline of around 27% in Q1. warned Missed October’s huge sales and profits.
Nevertheless, some or many investors still seem to be unaware of this, as evidenced by the stock price reaction (up) and top comments about Seeking Alpha. AMD should head towards $100 this year, if not more. ”
I’d argue there was nothing impressive about the results. Games continued to hold up reasonably well, but the PC space was far more havoc than Intel’s after Q3. Given Intel’s resurgence in the PC space since Alder Lake, there’s no more evidence of AMD’s ability to capture market share. bottom.
In any case, AMD missed out on its overly optimistic estimates for the first quarter (clearly unacceptable in the wake of Intel’s report), and the rest of the year (as it stood for release) is also on the high side. Too much. In other words, a downward revision as a result of the discussed trend (i.e. the end of the growth story) inflates the valuation.
Thus, as was my paper from a year ago, the only element that continues to underpin AMD’s results is the inorganic Xilinx contribution. So, given the extremely high valuation, Advanced Micro Devices, Inc. investors should bail out of the stock before this inorganic piece disappears in the second quarter.
