US earnings preview: AMD

Key dates

AMD is scheduled to report its first quarter (Q1) earnings after the market closes on Tuesday, the 2nd of May, 2023.

Company profile

The share price of AMD fell 55% in 2022 as the impact of higher interest rates and inflation weighed on tech stocks.

The fall in AMD’s share price was compounded by a “weak PC environment in the second half of the year”, a reference to lower consumer demand for finished electronics and an excess of parts needed to make PCs and servers.

The company reported the following key numbers in its Q4 2022 earnings call.

• Revenue of $5.6 billion increased 16% year-over-year, primarily driven by growth across the Embedded and Data Center segments, partially offset by lower Client and Gaming segment revenue
• Gross margin was 43%, a decrease of 7 percentage points year-over-year, primarily due to the amortization of intangible assets associated with the Xilinx acquisition
• Non-GAAP diluted earnings per share was $0.69 compared to $0.92 a year ago, primarily due to lower Client segment operating income.
• Cash, cash equivalents and short-term investments were $5.9 billion at the end of the quarter. The company returned $250 million to shareholders through share repurchases in the quarter.

What to expect

During its Q4 2022 earnings report, AMD provided guidance for the first quarter of 2023. The company expects revenue to be approximately $5.3 billion, plus or minus $300 million, a decrease of approximately 10% year-over-year.

Moreover, the Client and Gaming segments are expected to decline year-over-year, partially offset by Embedded and Data Center segment growth. AMD expects non-GAAP gross margin to be approximately 50% in the first quarter of 2023.

AMD CEO Lisa Su told analysts the PC environment was “weak.”

She went on to state, “Although the demand environment is mixed, we are confident in our ability to gain market share in 2023 and deliver long-term growth based on our differentiated product portfolio.”

Key financials: summary

• Revenue: $5.3 billion vs $5.6 billion in Q4 2022
• Diluted EPS: $0.57c vs $0.69c per share in Q4 2022.

AMD revenue chart

AMD EPS chart

What else to watch out for?

• Forward guidance: Comments on the macro environment around consumer demand and excess inventory
• Gross Margins: A key metric for chip makers - should be around 50%
• Datacenter: Comments on increased demand for AI accelerators
• Note: Tech Stocks Earnings in Q1 2023 have been better than expected from companies including Microsoft, Meta, Google, and Amazon, not to mention AMD’s main competitor Intel.

AMD technical analysis

The AMD share price fell over 65% from its bull market $164.46 high in November 2021 to its $54.67 low in October 2022.

AMD weekly chart

During the first quarter of 2023, the share price of AMD rallied over 50% as tech stocks enjoyed their best quarter since Q2 2020.

While the rally is viewed as a countertrend, it appears incomplete and is eyeing the resistance at $90 coming from the downtrend from the $102.43 low.

A sustained break above $90 should see the rally test and break the $102.43 high of March, before hitting a solid band of resistance $105/110.00 area.

AMD daily chart

1. TradingView: the figures stated are as of May 1, 2023. Past performance is not a reliable indicator of future performance. This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation.

Summary

AMD is scheduled to report its first quarter (Q1) earnings after the market closes on Tuesday, the 2nd of May 2023.

Given that the technical setup suggests the countertrend rally has further to go and the tendency for tech earnings this quarter to beat expectations, we expect the AMD share price to rally above the recent $102.43 high in the sessions ahead.