AMD earnings and forecast beat, sending stock soaring

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Advanced Micro Devices Inc. relieved concerns about its recent growth Wednesday by producing more profit than expected and projecting that revenue growth would accelerate, sending shares higher in after-hours trading.

AMD AMD, -3.77%  reported first-quarter net income of $81 million, or 8 cents a share, on sales of $1.65 billion, up about 40% from $1.34 billion a year ago. After adjusting for stock-based compensation and other factors, the company claimed earnings of 11 cents a share, up from a break-even performance a year ago.

The company guided for even stronger revenue growth in the current quarter. AMD predicted revenue of $1.68 billion to $1.78 billion, while analysts were forecasting $1.58 billion. At the midpoint, AMD said that would mean 50% revenue growth.

AMD stock gained about 8% after closing with a 3.8% decline at $9.71. Shares have declined 28% in the past year, as the S&P 500 index SPX, +0.18%  has gained 10.3%.

Shares have been pressured by concerns that AMD’s revenue gains were driven by sales of graphics processing units for crypto-mining purposes. AMD has repeatedly said that it believes crypto-related revenue was in the mid-single-digit percentages, but not everyone agrees. Susquehanna analyst Christopher Rolland downgraded the stock in March and wrote that the “proliferation of Ethereum mining ASICs [application-specific integrated circuits] has the ability to impact ~20% of AMD’s total company revenue.” AMD appeared to dispute that in a blog post, repeating its assertion about blockchain-related sales.

AMD reported that average selling prices for both GPUs and CPUs increased year-over-year and quarter-over-quarter, however. The segment that comprises those two businesses collected revenue of $1.12 billion, destroying the average analyst estimate of $926 million with a year-over-year growth rate of 95%.

AMD’s other segment was less productive, as enterprise embedded and semi-custom chips produced $532 million in revenue. That was a 12% decline from last year and lower than analysts’ average expectations of $624 million.

Opinion: Here are the three key areas providing momentum for AMD

That segment includes one of AMD’s biggest bets, the Epyc server chip. AMD abandoned the server market a few years ago, but has made a renewed push with its Epyc line since rival Nvidia Corp. NVDA, -2.05%  has shown the potential for sales of graphics processing units for driving machine learning.

Most analysts believe that Epyc gains should come in the second half of the year, however.

“I expect AMD to show even more gains next quarter based on channel fill of second-generation Ryzen desktop CPU, increased distribution of Ryzen mobile notebooks and the continued ramp of Epyc server deployments,” Moor Insights and Strategy analyst Patrick Moorhead said in an email after AMD’s results.

“The plan is to get to mid-single-digit unit share ($200M-plus/quarter) exiting the year, requiring a significant inflection in 2H,” Barclays analyst Blayne Curtis wrote in an earnings preview, suggesting that any AMD forecast for server chips could be the most important number given for the data-center business.

The new Ryzen chips Moorhead referenced were launched this month, so those sales did not show up in Wednesday’s results. AMD hopes to step up its competition with Intel Corp. INTC, -0.14%  in PCs while also challenging Nvidia in the high-performance gaming segment of the market, one of the few potential growth areas in a flagging sector.

Opinion: Intel should be wary of AMD’s advance

The future performance of Epyc and Ryzen would be even more important if there is a slowdown in crypto-related sales, Mizuho analyst Vijay Rakesh predicted ahead of the report.

”If there is a crypto-mining slowdown in 2H with declining crypto pricing, AMD’s Epyc sales may need to ramp substantially to offset the slowdown,” Rakesh wrote ahead of the report.

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