AMD Earnings Preview: Chipmaker Remains Well-Positioned to Ride the AI Megatrend

• AMD is getting ready to report Q2 earnings today.
• Despite facing challenges earlier this year, the launch of its flagship MI300 AI accelerator has reignited investor interest.
• Despite short-term headwinds, the chipmaker has the potential to capitalize on the AI boom in the long run.
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Advanced Micro Devices (NASDAQ:) is set to report its second-quarter financial results after the market closes today. The company’s stock price has experienced a roller coaster ride over the last few years. It surged over 125% in 2023 before pulling back sharply since the start of the year.

AMD’s fortunes have been closely tied to the AI megatrend. While the company faced headwinds earlier this year due to export restrictions on AI chips, the launch of its flagship MI300 AI accelerator has reignited investor interest. This, coupled with a resurgent PC market, positions AMD for a strong quarter.

Analysts expect AMD to report $5.73 billion in revenue and earnings per share of 68 cents. The data center segment is anticipated to be a key driver, building on the impressive 80% growth seen in the previous quarter. The company’s Ryzen processors are also gaining traction in the recovering PC market.

Looking ahead, AMD is well-positioned to capitalize on the AI boom. The company’s AI-related revenue is projected to exceed $3.5 billion this year, potentially outpacing even the most optimistic estimates.

Despite the positive outlook, AMD’s stock price has faced challenges due to broader market volatility. Investors will be closely watching for management’s guidance on future quarters, particularly regarding AI chip demand and overall business momentum.

AI Chip Dominates AMD’s Earnings Focus

AMD’s recent launch of the MI300, positioned as a strong competitor to Nvidia (NASDAQ:)’s market-leading AI chips, has significantly raised expectations for the company’s AI chipset unit. Following this launch, AMD increased its revenue forecast for this segment from $3.5 billion to $4 billion for the year.

The excitement surrounding the MI300 is so intense that it has nearly overshadowed AMD’s earnings report. AMD’s management is concentrating on boosting MI300 production, aiming to exceed the $4 billion revenue target. If AMD’s AI chip sales outperform expectations by year-end, the stock price could see a positive impact.

Despite the optimism, AMD faces significant risks. Nvidia’s dominant GB200 chipset could outshine AMD’s MI300. Additionally, AMD has experienced order cancellations from major buyers like Microsoft (NASDAQ:) and Alibaba (NYSE:) due to issues with its internal high-bandwidth memory (HBM), posing a substantial negative for the company.

Post-earnings, the focus will shift to updates on AI chip demand, which drove notable revenue growth in the first quarter. The report will also provide insights into AMD’s performance in its other key segments, gaming and client, which saw a sharp revenue decline in Q1. As AMD continues to prioritize AI chips, investors will closely watch how the company balances this with its broader business performance.

What to Expect From AMD Q2 Earnings?

Ahead of AMD’s financial results announcement after the market closes today, InvestingPro projects Q2 revenue of $5.7 billion and earnings per share (EPS) of $0.68. This forecast represents a 32% decline in EPS and a 15% decline in revenue compared to the same period last year.

In the past 90 days, 20 analysts have revised their forecasts downward, while 14 analysts have adjusted their estimates upward. Despite the anticipated declines this quarter, projections for the upcoming quarters show improvement. Q3 EPS is expected to rise by 38% to $0.94, with revenue projected to increase by 15% to $6.61 billion. Similar optimistic forecasts are seen for the last quarter of the year.

Reviewing historical performance, AMD has generally exceeded earnings estimates over the past two years, providing a positive track record that might influence expectations.

InvestingPro highlights several strengths for AMD:

• Expected annual growth in net profit
• Liquid assets exceeding short-term liabilities
• Potential for high returns in both the long and short-term

However, the platform also points out weaknesses:

• High valuation rates
• Volatile stock performance recently
• High price-to-earnings (P/E) ratio

Additionally, AMD’s average debt level and lack of dividend payments are warning signs, reflecting a moderate financial health score of 2 out of 5.

Compared to its competitors, AMD is currently lagging in return on assets and revenue growth. According to InvestingPro’s fair value tool, AMD’s fair value is calculated at $128.94 based on 12 financial models.

This suggests the stock, trading at an 8% premium, is close to its fair value. Despite this, the consensus forecast from 41 analysts points to a higher price level of $191, indicating differing opinions on the stock’s future performance.

As AMD prepares to release its earnings report, investors will closely watch for any updates on the company’s financial health and performance metrics.

Technical View: Risk of a Double Top Formation Persists

In the past two weeks, AMD has begun to trade below the ascending trend line that originated in October 2022, signaling a potentially negative trend. Historically, AMD has found support at the 89-EMA on the weekly chart during correction phases. Currently, it may find intermediate support between $130 and $133.

If AMD breaks below this support range, it could decline to the 0.618 Fibonacci retracement level at $120, calculated from the long-term trend. Another bearish indicator is the risk of a double-top formation this year.

Although the peaks aren’t of similar size, reducing the pattern’s reliability, the $140 level acts as a critical border. If AMD drops below $120, it could trigger a move towards the 0.786 Fibonacci retracement level near $92.

Bearish signals are currently dominant for AMD. These include the negative crossover of short-term EMAs on the weekly chart and the sharp downward trend of the Stochastic RSI.

For AMD to regain upward momentum, the stock needs to rise to the $160 range in the short term. This would negate bearish signals and suggest a return to the uptrend, attracting more buyers for a quicker recovery.

This could trigger an upward move towards $190 and potentially $220. However, if AMD remains below $160, it is likely to continue forming higher lows amidst current volatility.

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Disclaimer: This article is written for informational purposes only; it does not constitute a solicitation, offer, advice, counsel or recommendation to invest as such it is not intended to incentivize the purchase of assets in any way. I would like to remind you that any type of asset, is evaluated from multiple perspectives and is highly risky and therefore, any investment decision and the associated risk remains with the investor.