Of late, shares of Advanced Micro Devices AMD have been gaining solid momentum and even scaled a fresh 52-week high of $16.52 yesterday. This rally can be attributed to the company’s latest innovations at Computex in Taipei. Further, outstanding first-quarter fiscal 2018 results and encouraging second-quarter outlook drove its shares higher.
AMD’s presentation at Computex, a global information and communications technology and IoT show, wowed gamers, DIY PC enthusiasts and investors. The company has ramped up its CPU & GPU portfolio, which strengthen its competitive position against the likes of NVIDIA NVDA and Intel INTC.
The newly announced 7nm AMD Radeon Vega GPU is tailor-made for servers and workstations. Moreover, the new high-end Radeon RX Vega 56 and 64 Nano graphics card is likely to provide the company an edge against NVIDIA’s GeForce GTX 1080 and 1070 cards, which were released last year.
Additionally, Radeon based RX Vega56 graphics card was demonstrated on Samsung’s 80” QLED TV. AMD claims that the architecture is designed for tear free smooth game play. It can run either on an equipped PC or with Microsoft’s MSFT Xbox One S or Xbox One X gaming console.
AMD also showcased second generation Threadripper CPU powered by Ryzen technology. 12nm Zen+ architecture will support the Ryzen second generation based Threadripper 2. The chip is touted to be the highest-end chip featuring a whopping 32 cores and 64 threads, per PC Gamer. The product is scheduled to be launched in the third quarter of fiscal 2018.
The EPYC processor, codenamed “Rome” which runs on 7nm Zen+ architecture, was also demonstrated at Computex. The processor is under testing and the company aims to launch it in 2019. However, EPYC driven SA1 Tencent Cloud Service is available.
AMD’s Growth Prospects
Per IDC, PC shipments remained flat in the first quarter of 2018 compared with the anticipated decline of 1.5%. The traction witnessed by gaming PCs is likely to have averted the decline.
Per a Jon Peddie Research (“JPR”) report, with an increase in the number of people engaging in PC gaming, the related hardware market is experiencing a huge boost. Per the research firm, the market exceeded $30 billion mark in 2016 and is anticipated to witness compound annual growth rate (CAGR) of 6% through 2019.
Notably, growth in the gaming hardware market is driving demand for graphics processors as well. Per Allied Market Research, the GPU market is anticipated to reach $157.1 billion by 2022 at a CAGR of 35.6% from 2016 to 2022.
We believe AMD is well poised to benefit from the strong demand of gaming PCs.
JPR report reveals that AMD impressively increased its GPU shipments and gained market share from 14.2% to 14.9% in the first quarter of 2018. The gain can be primarily attributed to the robust adoption witnessed by the company’s expanding product portfolio for workstations and cryptocurrency mining.
Furthermore, increasing adoption of AI techniques and machine learning tools in industries like gaming, automotive and blockchain are primarily responsible for driving GPU demand. AMD is benefiting from this demand.
Upbeat Q1 Results & Positive Outlook
AMD delivered non-GAAP earnings of 11 cents per share for first-quarter 2018 compared with break-even reported in the year-ago quarter. The figure also surpassed the Zacks Consensus Estimate of 9 cents per share.
Revenues increased 40% year over year to $1.65 billion and exceeded the Zacks Consensus Estimate of $1.52 billion.
The accelerated adoption of the company’s products in the PC, gaming and data center industries primarily led to its impressive performance.
For second-quarter 2018, management expects revenues to be roughly $1.725 billion (+/-$50 million). The Zacks Consensus Estimate for revenues was pegged at $1.58 billion.
Advanced Micro Devices, Inc. Price, Consensus and EPS Surprise
Advanced Micro Devices, Inc. Price, Consensus and EPS Surprise | Advanced Micro Devices, Inc. Quote
In the last 60 days, the Zacks Consensus Estimate for AMD’s current year witnessed upward revisions. For the current year, the Zacks Consensus Estimate is pegged at 46 cents per share, up from earnings of 39 centsper share.
AMD also outpaced the Zacks Consensus Estimate in the trailing four quarters, recording a positive average earnings surprise of 35.7%.
Further, it has a long-term expected EPS growth rate of 7.75%.
We expect the trend to continue and drive the overall financial performance of this Zacks Rank #3 (Hold) stock.