Advanced Micro D shares have been immersed in a rally in the last two months and everything seems to add up for this to continue in the coming months. The income and earnings to be published at the end of the month could boost and increase their value, according to Harsh Chauhan in The Motley Fool.
AMD shares have been in a resurgence mode for the past few months, rising near the 25% since mid-May. The chipmaker’s actions seem to finally reassure disappointed investors after underperforming for most of the first half of 2021.
But the recent rally has made stocks more expensive. Now it is traded at 37 times the winnings end, which is significantly higher than the multiple at which it was trading in mid-May. Once you publish your earnings report from the second quarter of 2021 to the end of July, that multiple is likely to rise and make stocks more expensive.
AMD could hit the gas in the second half
Based on AMD estimates, it should report income of the second trimester of $ 3.6 billion at the midpoint of its orientation range. That would translate into a huge year-over-year increase in 86%. The company also anticipates a 47% adjusted gross margin for the second quarter, which would be a gain of three percentage points over the figure for the prior year period of the 44%. Not surprisingly, Wall Street expects AMD’s earnings to triple year-over-year to $ 0.54 a share in the second quarter.
“AMD had noted in its first quarter results release in April that” the year-over-year increase is expected to be driven by growth in all businesses. ” That growth can only be expected to strengthen in the second half of the year and give AMD’s stock price a good shot, ”says Chauhan.
$ 6.04 billion of AMD’s total 2020 revenue of $ 9.76 billion occurred in the second half of the year. So the last six months of 2020 produced nearly two-thirds of AMD’s total revenue. A similar trend was also observed in 2019. The firm generated $ 3.93 billion in revenue in the last six months of the year from its total revenue of $ 6.73 billion, meaning that the 58% of the top line occurred in the second half.
Furthermore, AMD’s stock price also follows suit and becomes supersonic in the second half of the year. Here’s the 2020 stock price chart illustrating the same.
Also in 2019, AMD shares rallied strongly in the second half of the year.
“Now, it is absolutely correct that past returns are not an indicator of the future, but there are great similarities between the second halves of 2019, 2020 and this year,” says Chauhan.
The Ryzen CPU set sales on fire in 2019, especially during the holiday period, thanks to its price and technology advantage over Intel. The chipmaker ended the fourth quarter of 2019 with its “Highest Quarterly Customer Processor Unit Shipments in Over Six Years”, driven by strong demand for both laptops and desktops. Also, the number of platforms that use server processors EPYC it doubled in the last quarter of that year.
In the second half of 2020, AMD’s growth in client and server CPUs was supported by the arrival of a new catalyst in the form of game consoles. While AMD’s new Ryzen processors warmed up in the second half of the year, the tremendous demand for next-gen consoles led to a faster increase in sales of semi-custom chips compared to the previous console cycle. Meanwhile, the server business posted another record quarter at the end of 2020 as it ended the year with more than 200 cloud platforms powered by its chips, which was double compared to the prior year period.
“Don’t be surprised to see a similar trend unfold in 2021 as AMD is sitting on similar catalysts that will likely send sales skyrocketing,” Chauhan notes.
Why history can repeat itself
AMD already gave us signs of excellent financial performance in the second half when it updated its guidance in April. The company had increased its revenue growth guide for the whole year at fifty% from its initial expectation of growth of the 37%, citing strength in all its lines of business. “It will not be surprising to see AMD increase its guidance once again when it releases its second quarter earnings, as demand for products powered by its chips shows no signs of slowing down,” says Chauhan.
The business segment, integrated and semi-personalized (EESC), that moved the needle big for AMD in the first quarter with year-on-year growth of 286% At $ 1.35 billion, it appears poised to maintain its incredible momentum. This is because this segment serves two rapidly growing areas: game consoles and server processors.
AMD chips power the popular console Sony PlayStation 5, as well as the new models of Microsoft Xbox. The good news is that both companies are seeing huge demand for their game consoles, which they have not been able to satisfy. Sony, for example, expects the PS5 to help it break a 24-year sales record in fiscal 2023 (ending March 31, 2023) with shipments of 22.6 million units. Sony is aiming to sell 14.8 million PS5 units in the current fiscal year ending March 2022.
On the other hand, demand for AMD’s server central processing units (CPUs) may continue to improve thanks to the technology advantage it enjoys over Intel. AMD’s server prospects recently increased when it emerged that Alphabet’s Google Cloud is leveraging the chipmaker’s EPYC server chips to launch new services. Add in the fact that Intel has been hit by lags once again in the server CPU market, with its chips 10 nanometer Sapphire Rapids delayed until 2022, and it won’t be surprising to see AMD take more stakes from its biggest rival.
Meanwhile, the graphics and computing segment, which registered a year-on-year growth of 46% in the first quarter to $ 2.1 billion thanks to strong demand for Ryzen desktop and laptop CPUs and Radeon graphics cards, it also runs flat out. The executive director, Lisa Su, recently noted that Ryzen CPU demand remains stronger than supply despite the company’s efforts to increase supply each quarter.
In total, AMD’s revenue, earnings and share price could take off in the second half of 2021 and beyond. Now is a good time to buy these growth stocks, as their price-to-earnings ratio of 37 represents a significant discount to AMD’s expensive five-year average multiple of 122. Additionally, analysts anticipate annual earnings growth for the company. 32% for the next five years. years, AMD shares could be a solid long-term bet at their current valuation, ”concludes Chauhan.