Mixed Results Actually Bring More Optimism than Risk for AMD

Key Points

• Revenue and net income are up
• Projected growth of more than 40% year-over-year
• Earnings are currently but in line with overall industry
• AMD shows more promise in several factors over peers

Semiconductor company Advanced Micro Devices (NASDAQ: AMD) just reported their fiscal Q3 earnings on November 1, 2022, with mixed results, but a few key points give them an edge. For one, revenue is up 29% YOY, to $5.57 billion. Furthermore, net income increased by 23% to more than $1 billion. And they managed to do this as the PC market softened thanks to a shortage in chips and other computer components.

Now, share value may have plummeted this year, but it should be noted that the price is still well above the historic low of $1.72 (June 2015). It should also be noted that AMD's lows have consistently rebounded, several times, for the last 40 years.

Moving forward, AMD remains upbeat, with a current share value of $60.60 and projected 2022 revenue between $23.2 billion and $23.8 billion. This could represent approximately 43% growth over last year.

Earnings and Sales Signal AMD is Gaining Momentum

Yes, AMD is having a tough year. They started comparatively strong, beating the Q2 earnings per share (EPS) price target of $1.03 by a couple of cents. However, this was likely a vestige of the previous two quarters, when reported earnings beat the range high by at least a dime each time. And the decline becomes more clear as we look at the most recent quarterly report, which indicates that earnings ($0.67) did not meet the estimate. Fortunately, it was still well above the range low ($0.53).

Although EPS has fallen by 8%, so far, it should be noted this is because share count dramatically increased. EPS is now $0.67 (just short of the $0.69 estimate) but the fact that investors want to hold more shares of the stock certainly implies its strength.

Sales for the respective quarters are perfectly in line with the earnings trend. Quarterly sales beat the range in Q4 of 2021 and Q1 of 2022 and then simply met the estimate in Q2 of 2022. Sales in the most recently reported quarter also failed to meet the estimate, just like earnings.

On an annual basis, the numbers follow a similar trend In both 2018 and 2019, sales comfortably met the estimate, and earnings followed, besting its estimate by a penny or two. By 2020, though, sales beat the range high, as did earnings. This tells us that AMD's earnings are consistently influenced by sales; and if analysts' predictions are correct, earnings should grow because they expect sales to increase.

Their next reporting date could be as early as Jan 31, 2023.

Advanced Micro Devices Outpaces Its Peers

Advanced Micro Devices is one of the most notable names in the world of computers and technology, especially in terms of the components they make. Another company with similar notoriety would probably be Intel, whose processors are often the benchmark. But while these two companies have a lot in common, their financials could not be more different.

For one, AMD currently has a [moderate] BUY rating while Intel (NASDAQ: INTC) has a HOLD rating. This is probably because AMD's upside (62.0%) is more than double that of INTC. In addition, AMD's P/E ratio ($25.37) is thrice that of INTC . They also beat INTC in terms of Return on Equity and Return on Assets (15.17% and 12.02%, respectively), and expect about 30% higher projected earnings growth.

As a matter of fact, Intel really only bests Advanced Micro Devices sin a couple of areas. For one, INTC has a Price Sales Ratio (P/S) of 1.43, which is about four times better than that of AMD (5.93). In addition, INTC is the only stock we are comparing right now with a net positive beta of 0.73, meaning it is 27% less volatile than the S&P 500. AMD has a beta of 2.04!

When it comes to beta measure, another AMD peer actually breaks even. Indeed, Texas Instruments (NASDAQ: TXN) has a beta measure of 1, and has better positioning than the other two, despite its HOLD rating. First of all, their current share value ($157.39) is in the bottom 25% of the stock's 52-week range; INTC and AMD are in the bottom 7% and 5% respectively. In addition, Texas Instruments rates extremely high in terms of net margin (44.21%), Return-on-Equity (63.68%), and Return-on-Assets (35.37%), all of which are at least 3 times higher than the same measures from AMD and INTC.

However, analysts expect that TXN will move backward this year, with a projected earnings growth value of -13.48%. This makes them a far riskier investment, even with other impressive factors.

When considering every variable, then, AMD may hold the most promise in both the long and short, which is why analyst have given it a [moderate] BUY rating.