AMD Set to Report Q3 Earnings: Buy, Sell or Hold the Stock?

Written By Michael Gary Scott

Advanced Micro Devices AMD is set to release its third-quarter 2024 results on Oct. 29.

AMD expects third-quarter 2024 revenues to be $6.7 billion (+/-$300 million). At the midpoint of the revenue range, this represents year-over-year growth of approximately 16% and sequential growth of approximately 15%.

The Zacks Consensus Estimate for revenues is pegged at $6.71 billion, suggesting growth of 15.72% year over year. The consensus estimate for third-quarter earnings is pegged at 91 cents per share, unchanged over the past 30 days.

AMD’s earnings beat the Zacks Consensus Estimate in three of the trailing four quarters while matching the same in one quarter, the average earnings surprise being 2.32%.

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Advanced Micro Devices, Inc. Price and EPS Surprise

Advanced Micro Devices, Inc. Price and EPS Surprise

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Let’s see how things are shaping up prior to this announcement.

Weak Embedded and Gaming to Hurt AMD’s Q3 Results

AMD’s third-quarter 2024 revenues are expected to have suffered from weakness in the Embedded and Gaming segments. On a year-over-year basis, the segment revenues are expected to have declined.

The Zacks Consensus Estimate for third-quarter Embedded revenues is currently pegged at $918 million, indicating a 29.2% year-over-year decline. The consensus mark for Gaming revenues is pegged at $560 million, suggesting a massive 64.03% year-over-year decline.

AMD’s Data Center & Client Segment Revenues to Grow Y/Y

AMD expects Data Center segment revenues to increase by a double-digit percentage, driven by the data center GPU ramp on a sequential basis. Client segment revenues are expected to increase.

Year over year, AMD expects Data Center and Client segment revenues to be up significantly, driven by the strong product portfolio. 

The chipmaker has been benefiting from portfolio strength and an expanding partner base. Its fourth-Gen EPYC processor has been regularly deployed by hyperscalers to power their internal workloads and public instances. 

Exiting second-quarter 2024, AMD had more than 900 public cloud instances available. In the data center AI business, the MI300 accelerator’s quarterly revenues exceeded $1 billion for the first time. 

AMD’s initiatives to expand its portfolio are making it well-positioned to challenge NVIDIA NVDA not only in the data center market but also in the growing AI-enabled consumer PC market.

AMD Shares Underperform Sector, Industry

AMD shares have gained 7.4% year to date (YTD), underperforming the Zacks Computer & Technology sector’s growth of 25.5% and the Zacks Computer – Integrated Systems industry’s 16.3%.

AMD Lags Sector YTD

 

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Image Source: Zacks Investment Research

 

AMD stock is not so cheap, as the Value Score of F suggests a stretched valuation at this moment.

In terms of the forward 12-month Price/Sales ratio, AMD is trading at 7.96X, higher than the sector’s 6.14X and the industry’s 3.32X.

Price/Sales (P/S) Ratio

 

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Image Source: Zacks Investment Research

 

Acquisitions & Solid Data Center Footprint Aid AMD Prospect

AMD’s long-term prospects are bright, given robust spending on AI chips.

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The World Semiconductor Trade Statistics (WSTS) projects global sales to reach $611.2 billion, indicating a 16% increase over 2023, up from the previous guidance of 13.1%. For 2025, WSTS global sales are expected to grow 12.5%, ultimately reaching $687.4 billion.

The projections bode well for AMD’s long-term prospects. New offerings like the Instinct MI325X accelerator are helping to expand AMD’s footprint in the data center market. AMD has launched the Ryzen AI 300 Series, the third generation of AMD AI-enabled mobile processors, and Ryzen 9000 Series processors for laptop and desktop PCs.

AMD expects data center GPU revenues to exceed $4.5 billion in 2024. It plans to follow MI325X with the MI350 series in 2025 based on the new CDNA 4 architecture, which is on track to deliver a 35-fold increase in performance compared to CDNA 3. The MI400 series is scheduled for launch in 2026.

AMD and its partners Broadcom AVGO, Cisco, HP Enterprise, Intel, Google, Meta Platforms META and Microsoft joined to announce Ultra Accelerator Link. It is an industry-standard technology to connect hundreds of AI accelerators based on AMD’s infinity fabric technology.

AMD’s acquisitiveness is aimed at reducing the technological gap with NVIDIA in the ongoing race for AI dominance. It has been on an acquisition spree to strengthen its AI ecosystem.

In the past 12 months, AMD has spent $125 million on a dozen acquisitions. Nod.ai and Mipsology are some other notable acquisitions in the recent past.

It recently closed the acquisition of Helsinki, Finland-based Silo AI. AMD is strengthening its data center AI footprint with the announced acquisition of ZT Systems for roughly $4.9 billion in cash and stock.

Conclusion

AMD’s third-quarter 2024 results might have suffered from the weakness in the Embedded and Gaming segments amid stiff competition from NVIDIA despite its strong position in the data center market. Modest growth prospects and stretched valuation make the stock a risky bet.

AMD currently has a Zacks Rank #4 (Sell), suggesting that investors should stay away from the stock for the time being.

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