Advanced Micro Devices, Inc. (AMD) on Q2 2021 Results - Earnings Call Transcript
Operator: Hello, and welcome to the AMD Second Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. It’s now my pleasure to turn the call over to Laura Graves, Corporate Vice President of Investor Relations. Laura, please go ahead. Laura Graves: Thank you, and welcome to AMD’s second quarter 2021 financial results conference call. By now, we hope you have had the opportunity to review a copy of our earnings press release and slide. If you’ve not reviewed these documents yet, they can be found on the Investor Relations page of amd.com. Participants on today’s conference call are Dr. Lisa Su, our President and Chief Executive Officer; and Devinder Kumar, our Executive Vice President, Chief Financial Officer and Treasurer. This is a live call and will be replayed via webcast on our website. Before we begin, I would like to note that Saeid Moshkelani, Senior Vice President and General Manager of our Client Business; Ruth Cotter, Senior Vice President of Worldwide Marketing, Human Resources and Investor Relations and Strategy will attend the Jefferies Semiconductor and Hardware Summit on Tuesday, August 31. Devinder Kumar will attend the Deutsche Bank Technology Conference on Friday, September 19 and our third quarter 2021 quiet time is expected to begin at the close of business on Friday, September 10. Today’s discussion contains forward-looking statements based on current beliefs, assumptions and expectations, speak only as of today, and as such involve risks and uncertainties that could cause actual results to differ materially from our current expectations. We refer to the cautionary statement in our press release for more information on factors that could cause actual results to differ. We will refer primarily to non-GAAP financial measures during this call. The full non-GAAP to GAAP reconciliations are available in today’s press release and slides posted on our website. With that, I will hand the call over to Lisa. Lisa? Dr. Lisa Su: Thank you, Laura, and good afternoon to all those listening in today. Our business performed exceptionally well in the second quarter. A strong execution in growing customer preference for our high performance product generated significant market and financial momentum. We saw a very strong demand across all of our businesses, which resulted in second quarter revenue growing 99% year-over-year to 3.85 billion. We expanded our gross margins by 4 percentage points, doubled operating margin, and more than tripled profitability year-over-year. We also delivered record revenue for the fourth straight quarter and generated record free cash flow in the quarter. Turning to our computing and graphics segment, second quarter revenue increased 65% year-over-year to 2.25 billion driven by significant growth in both Ryzen and Radeon processor sale. In client computing, we had another record quarter of processor revenue. Both desktop and notebook revenue increased by a strong double-digit percentage year-over-year, and we believe we gained revenue share for the fifth straight quarter. Devinder Kumar: Thank you, Lisa and good afternoon everyone. AMD has another outstanding quarter. Our high performance computing product momentum is driving record revenue growth, record profitability, and significant cash generation. Second quarter revenue was 3.85 billion, up 99% from a year ago, and up 12% from the prior quarter. Year-over-year growth was driven by significant revenue increases across all businesses. Gross margin was 48%, up 360 basis points from a year ago, driven by an improved revenue mix and higher margin contribution from all businesses. Operating expenses were 909 million compared to 617 million a year ago as we continue to invest in business growth and our long-term product roadmaps. Operating income was 924 million, up 691 million from a year ago, driven primarily by revenue growth. Operating margin doubled to 24%, up from 12% a year ago. Net income more than tripled to 778 million, up 562 million from a year ago. Diluted earnings per share was $0.63 per share, compared to $0.18 per share a year ago. This includes a 15% effective tax rate in the second quarter of 2021, compared to 3% a year ago. Laura Graves: Thank you, Devinder. Operator, we're ready to begin the Q&A session now. Operator: Thank you. Our first question today is coming from Toshiya Hari from Goldman Sachs. Your line is now live. Toshiya Hari: Good afternoon. Thank you so much for taking my questions and congratulations on a very strong set of results. Lisa, you didn't really touch on the supply situation in the marketplace today that appears to be a pretty big focus for companies and also for investors. How would you characterize the current gap between supply and demand? And importantly, you know, as we look ahead to 2022, how comfortable are you from a foundry wafer capacity and perspective, as you continue to grow the business strong double-digits? And then I've got a quick follow-up. Dr. Lisa Su: Sure. Well, hey, thanks for the question. You know, I think it's fair to say that the semiconductor demand environment, and particularly the AMD demand environment has been very strong in 2021. You know, we've been working on supply for the past couple of quarters, I think I'm actually quite pleased with the progress that we've made in terms of increasing our supply. You know, what I've said previously is, you know, certainly, you know, we do see, you know, some level of constraints, but we are making progress each quarter. And we made progress in the second quarter that enabled us to exceed the original guidance. And as we go into the second half of the year, you know, we're continuing to bring on extra supply each quarter, which is leading to, you know, the full-year of guidance raise that we have. So, I think overall, you know, we continue to make progress. I will say that, you know, it's tight, like you've heard from many other companies, you know, through the end of this year, I think it improves in 2022. We've been planning for significant growth, you know, our model is one where we're going to drive significant growth. So, we've been planning with that with our supply chain partners. And, you know, we do have confidence that we can continue to grow substantially as we go into the second half of this year and into 2022 with the supply chain. Toshiya Hari: Great. And then as a quick follow up, I guess a multi-part question on your server, CPU business or data center business more broadly. I was hoping you could speak to, sort of the revenue construct in the second quarter. And if you can differentiate between second gen and third gen, Rome versus Milan, and then what you're seeing on the Cloud side versus Enterprise side of your business, and the outlook into the second half as you think about, sort of the different segments of that business? And then finally, you talked about data center being more than 20% of revenue, in Q2, what's embedded in your second half guidance? Thank you. Dr. Lisa Su: Sure. Okay. Quite a few questions there. So, let me try to work through them. So, in terms of the makeup of our data center business, I mean, our, you know, our server business was very strong. I think the product capability, and, you know, sort of just, you know, sort of the performance and the total cost of ownership for Milan has proven out very well with our customers. So, we're very happy with that launch. In the second quarter, we did see significant growth with Milan, that being the case, so Rome was still a larger portion of the revenue. And I would say, in the second quarter, it was more cloud weighted. So, we saw, you know, cloud tends to ramp faster on new generation, and that was the case in the second quarter. So, you know, cloud grew faster than enterprise. You know, as we go into the second half of the year, we expect that Milan will ramp very quickly and, you know, crossover, you know, third gen will crossover second generation in the third quarter, and what we're seeing actually is, you know, continued strength across cloud and HPC, which have been traditionally strong for AMD, but we're actually seeing very good momentum in enterprise. And I think, you know, with the breadth of the platforms that we have out there, and, you know, just the coverage, and then, you know, sort of the per core performance, as well as the overall socket level performance. We're getting a very strong traction and, and we're pleased to see that. So, I think as we go into the second half of the year, I think enterprise will be a stronger component for us than it was in the first half of the year. And that's, you know, the balance that we want, but, you know, overall, we're pleased with that. And then in terms of your question about, you know, server was, I’m sorry, data center was greater than 20% of our revenue in the second quarter. We believe that the data center business will continue to be a strong driver for us into the second half of the year. And so it'll be a larger percentage of our overall revenue in the second half of the year. Operator: Thank you. Our next question is coming from Aaron Raikers from Wells Fargo. Your line is now live. Aaron Raikers: Yeah, thanks. Thanks for taking the question. Congratulations, as well, on the quarter. I wanted to ask about, kind of the trajectory of gross margin, if we take the full-year guidance now guiding up 100 basis points, with the 3Q guide into consideration, it looks like you're actually pushing towards a 50% gross margin, you know, how do we think – maybe you can unpack, you know, how we should think about the segment gross margin levels? And, you know, do you think that that if we're hitting 50%, that's a new, you know, threshold that we can consider modeling going forward? Devinder Kumar: You know, I think on the gross margin, first of all, I'd say we are very pleased with the progress we have made. And as you observe, we have taken up the guidance for the year from 47 to 48. And in our long-term target model, we have plans to get to greater than 50%. And I think the descent of the businesses that Lisa just talked about, especially in the data center, help us get there. You know, the product mix is important, the ramp in the data center and the client PC business, as we gain revenue share is going to be important to drive that. And we are confident that we can continue to improve the gross margin, given the mix of the business and also the revenue ramp in the businesses that are higher than corporate average gross margin. So feel very good about getting to the greater than 50% over time. Dr. Lisa Su: Yeah, and maybe… Aaron Raikers: Maybe this was a… I'm sorry. Dr. Lisa Su: Oh Aaron, I was just going to add to that. I think the most important thing, you know to think about as you think about our business going forward is, it really is about the mix of business. So, as data center becomes a higher percentage of our business, you know, that's a favorable mix for us. And then within the segments, as well as, you know, as we look at, you know, where we're strategically focusing, as we, you know, really mix to the higher end of the portfolio, you know, those are the key things that we're looking at from a margin standpoint, but there are always puts and takes, you know, in the business, it's just really about the mix. Aaron Raikers: Yeah. And then just as a real quick follow-up, you know, as Milan ramps and appreciating that, you know, Rome is, sounds like still the majority of the EPYC line-up, how successful have you been, as far as leveraging a stronger position, you know, with regard to uplift on blended ASPs as we think about the continuation of Milan, and even starting to think about Genoa going forward? Thank you. Dr. Lisa Su: Yeah. So, as we, you know, as we think about, you know, sort of the trajectory of the business, it is about offering, you know, more performance per socket, and that is what we're doing. So, I think, you know, Milan is certainly a performance uplift relative to Rome. It does lend itself to a higher ASP or higher mix of the business. And then clearly, as you know, we go to general, you know, we're going to continue that trajectory. So, I think, and then, you know, within server there's also a mix between Cloud and Enterprise. As I said earlier, we're quite Cloud-waited here in the first half of the year. And as we as we go to a stronger percentage of enterprise, you know, that would also be a favorable mix in the server side of the business. Operator: Thank you. Our next question is coming from Vivek Arya from Bank of America Securities. Your line is now live. Vivek Arya: Thanks for taking my question. Lisa, it's to continue on the server business, until last year, you know, we saw AMD take about 2 to 3 points of server share annually, this year the share gains seem to be accelerating on the order of 4 to 5 points. I'm curious what's driving this acceleration? And did you see anything from Intel's roadmap disclosures yesterday that you think can impact your server share gain momentum? Dr. Lisa Su: Yeah, Vivek. Thanks for the question. Well, you know, as you know, very well, we're very focused on, you know, sort of multi-quarter, multi-year progress in the server in the data center business, you know, I think we're excited with the momentum around our server business. I think, you know, the product roadmap is very strong, I think the execution has been very strong. I think customers also, with the third generation in Milan, you know, felt much more comfortable to go more broadly, with Milan, just because this was, you know, sort of the third time, right. They had – many of our customers were on Rome already, but with, you know, with Milan, it was, you know, sort of socket compatible. And so there was, you know, it was a faster time to ramp and we're seeing it ramp faster. So, we feel good about where we're positioned. I mean, it's a very competitive market out there Vivek. I’ll always say that. We expect our competition to be really good and we need to be better than that. And so, you know, our team is very focused on execution. And we're excited about Genoa. I think our customers are excited about Genoa. And so, you know, we need to, you know, keep the momentum and keep the roadmap execution as strong as it has been. Vivek Arya: Got it. And for my follow-up, you announced a $4 billion share buyback, I believe, you know, kind of midway or late-midway, through Q2, you only did about 256 million of that. How should we think about buybacks going forward? You know, are you, you know, do you have a certain timeframe in mind? What's going to guide your decision when and how much of buybacks to do? Thank you. Devinder Kumar: Yeah, I think no specific Vivek, as you know, these programs have been really opportunistic, and we will obviously return, you know, capital to the shareholder as the balance sheet continue to improve. However, we are pleased to initiate the program in Q2 with about 256 million, repurchased 3.2 million. And you will see as to more over time, but I wouldn't want to get into any specifics on this call. Operator: Thank you. The next question is coming from Matt Ramsey from Cowen and Company. Your line is now live. Matt Ramsey: Thank you very much. Good afternoon, everybody. I guess Lisa, one of the things I was really pleased to see and this set of results and investors have asked me about quite a bit is that you're delivering the revenue upside, but the operating margin, leverage is coming with that. You guys have rightly been spending a ton to grow the business and that's been reflected in the growth. And I just wonder how you're thinking about the balance of revenue growth versus delivering; sort of upside to operating margins going forward because it's an item that's been a fulcrum from some investors in my conversation? Thanks. Dr. Lisa Su: Sure, Matt, maybe I'll start and then see if Devinder has anything to add. You know, I think we've always been very thoughtful about, you know how we, you know, both invest in the business as well as delivering, you know, operating leverage, and look, I think our revenue growth has been very strong, you know, it was certainly above what we had previously forecasted. We are taking the opportunity to vent – to invest in the business. And, you know, that's investing in R&D and investing in sales and marketing, and really, you know, the overall capabilities there, but you do see the operating leverage in the business. And I think we intend to continue to deliver, you know, improved operating margins, you know, as we go forward. So, I think we can do it, do all of those things. I think we can continue to grow revenue significantly above the industry. We will continue to invest in OpEx at a lower rate than the revenue growth, and we will continue to deliver, you know, operating margin improvement over time. Devinder Kumar: Yeah, I think you covered it Lisa. I think that's well said. I mean, as you saw, we did update the guidance for OpEx as a percent of revenue from, you know, about 26% or 25% for the year, and we continue to discipline from a viewpoint of the investments we need to make to grow the business, as well as obviously, invest in R&D go to market. Hiring people is another area of focus right now as the business is growing pretty significantly. Matt Ramsey: Thank you both for that. As my follow-up, it’s interesting, the more strength the PC market shows, it's almost like the more concern investors have that eventually we revert back towards the mean. And Lisa, your competitor gave some fairly bullish commentary about the state of the PC industry going forward. And I wonder if you might share your view? And we've heard in our work a few bubbles in the Chromebook market, and maybe a couple of PC OEMs saying they're building a tiny bit of CPU inventory. So, on the back of that commentary about the market, if you have any views on your own visibility, and inventory of AMD parts, or maybe the gap between orders and your ability to fulfill them in the PC market, those things would be really helpful. Thank you. Dr. Lisa Su: Yeah, sure, Matt. So, look, there are lots of different signals in the PC market. So, you know, maybe I will make a few comments. I think it's fair to say that, you know, the end user demand has been very strong. So you know, very strong in the first half of the year, very strong in the second half of last year. And, you know, that's from all this, you know, work from home, school from home, you know, sort of, and then some of this return to office trends. You know, within that, you know, there is a little bit of a mix shift as you go through time. You know, when I look at the market, I would say that we performed very well. You know, within this market backdrop, you know, we continue to gain revenue share. And what that means is, you know, we're focusing on the most strategic segments of the PC market. You know, as we go forward, you know, I do agree that end user demand is strong. I also believe that, you know, if you look at the second half of this year for the PC market, you know, you'll hear about, you know, sort of pockets of component shortages or match sets, and things like that. So, we're taking that into account, as we think about the second half of the year. From our perspective, you know, we're planning the PC, you know, our PC business to be about flattish, first half and the second half. And, again, we think that that's very well supported by you know, all of the ordering patterns and all of our, you know, sort of, you know, look at, you know, what the PC OEMs are doing. From an inventory standpoint, we do not believe there is significant inventory. We do track it, you know, very closely of AMD product. Anyways, we look at it at the retailers as well as at, you know, with our OEM. So, I think we have this, you know, very, you know, we're watching it very closely, and, you know, recognize that the PC market may go up or down. We're expecting it to be like I said, for our business, roughly flattish first half and the second half. And that being the case, you know, we continue to believe that, you know, there is strong end user demand, and there's just, you know, some supply matching that needs to happen, you know, in the marketplace. Operator: Thank you. Our next question today is coming from John Pitzer from Credit Suisse. Your line is now live. John Pitzer: Yeah. Good afternoon, Lisa. Thanks for letting me ask the question and congratulations on the solid results. First just a clarification, I think you said in your prepared comments, relative to the June quarter that EPYC grew solidly double-digits sequentially. The overall segment grew about 19%. I'm just curious, did that EPYC outgrow the overall segment or was it more in line? Can you give us a sense of how it did relative to the segment? Dr. Lisa Su: Yes. We outgrew the segment in the second quarter. John Pitzer: Perfect. And then my second question is just more of a strategic question around pricing, clearly last week on their conference call, Intel talked about perhaps being a little bit more price aggressive, especially in data center, to protect share, and I'd like to get kind of your thought on pricing. I mean, in my mind, that market is much more about a total cost of ownership than an entry point. And given your price performance, I'm just kind of curious as to how concerned you are about the pricing environment or how concerned you think we should be over time? Dr. Lisa Su: Yeah, thanks for that John. Look, I think the, you know, the market has always been competitive, you know, I don't see that it has, you know, become more competitive or that's changed. As you said, you know, pricing is not the first order variable when you're buying a server CPU it really is about total cost of ownership. I think the performance leadership that we have, is, you know, is clearly there, and I think customers see that. So, you know, we will, you know, we’ll always fight for every socket. I mean, you know, that we're very competitive in that fashion. But, you know, we think that, you know, the way to do that is with the strength of the roadmap and the strength of the deep partnerships, and, you know, prices, sort of a second order lever in this market. John Pitzer: Thank you. Operator: Thank you. Our next question today is coming from Harlan Sur from JPMorgan. Your line is now live. Harlan Sur: Good afternoon and great job on the quarterly execution. You know, now with Milan on a strong ramped trajectory, and, you know, also good to see the moment enterprise, as you guys continue to drive EPYC into new markets just wanted to get an update on the pool in the total service provider market, right? It's a relatively big market. It's about $6 billion, $7 billion market. Milan supports much more networking functionality versus prior generations. And operators continue to virtualize the core of their networks. And with 5G, they're also starting to virtualize their radio access networks. And so just want to see if the team is seeing early momentum with Milan with OEMs, as well as with some of the large 5G service providers? Dr. Lisa Su: Yes, sure. Harlan thanks for the question. Yeah, look, we believe the telco segment is a very good segment, you know, for us, and I would say that there's a lot of interest. I wouldn't say it's a significant piece of revenue today. So, I view that as, you know, sort of opportunity as we continue to build out the solutions for Milan, but you know, it is one of the areas that we believe is very strategic for AMD. And as Xilinx, you know, comes in to, you know, so as we combined the Xilinx business with ours, I think their relationships as well, in the communications and telco market, you know, will be helpful in just bringing the overall solution set together. So, yes, we think it's a good market for us, but I would say we're, you know, we're still very early on that particular cycle. Harlan Sur: Great, thank you. And then on the strong early momentum in enterprise as you move into the second half and as you probably have some visibility into next year, because the enterprise cost cycles are probably a bit longer than some of your cloud customers. Can you just talk about the breadth of the engagements in enterprise, across large corporations, and small-to-medium size businesses? Dr. Lisa Su: Yes, Harlan. So, you know, we have seen a very strong pipeline, and you know, that started with Rome, but we see that expanding with Milan. I think, if you look at the breadth of platform offerings from all the largest OEMs, for Milan, it's just, you know, broader, and then our past generation, and I think people are also starting, you know, to come up with more, you know, appliances, and we've done quite a bit more ISV optimization as well. So, you know, our visibility is, you know, very good, into the second half of the year. And it's also very good into 2022. I think the good piece about this, as you said it is longer design cycles, but with large companies, and certainly with some of the, you know, the tier two cloud guys, you know, we've seen, you know, good strong visibility for multiple quarters. And then as we think about, you know, sort of, you know, the small, medium business and more of the channel business, I think all of that is strong opportunity for us. Operator: Thank you. Our next question is coming from Joe Moore from Morgan Stanley. Your line is now live. Joe Moore: Great, thank you. I wonder if you could talk about the seasonality of the console business in the back half of the year. Is there any seasonality or does that continue to be kind of more of a supply constraint? Dr. Lisa Su: Sure, Joe. So, you know, the console business, you know, we're quite early in the console cycle. And I think you've seen that there's very strong demand for those products. And so, I think the seasonality is, is not typical. So, you know, typically, we see the second half, you know, stronger than the first half, and that is, you know, sort of more muted this year. So, there is some growth into the second half of the year, but it's not nearly what it is in a typical console, you know, seasonality. Joe Moore: Great, thank you. Operator: Thank you. Our next question is coming from Stacy Rasgon from Bernstein Research. Your line is now live. Stacy Rasgon: Hi, guys, thanks for taking my questions. Lisa, around the PC environment, so you sound a bit more sanguine about it versus your competitor who does seem to be calling for growth next year, and maybe that's a function of some of the opportunities – the other opportunities that you have. I'm just curious, given your other outlook for, kind of continued strong growth, do you think that strong growth is dependent at all, on the state of the PC market next year? So, for example, like a PC, if they were down 10% next year, do you still think you could still grow strongly year-over-year in 2022 off the rest of the portfolio? Dr. Lisa Su: Yeah, sure, Stacy. So, look, you know, I think there are lots of different signals in the PC market for 2022. So, I think, you know, what we're doing is taking let's call it, we're planning for various different scenarios. But I would say that, you know, from our point of view, you know, the overall answer to your question is, yes. I mean, we believe that there's a, we have strong growth momentum across the portfolio. And, you know, we believe that we will, you know, we can grow in the PC business as well, you know, even if the market is, you know, let's call it not as robust as some might forecast. You know, our view is that, you know, we're still underrepresented, you know, across the board in the markets that we play in, whether you're talking about data center or PCs, or gaming, and on the PC side, in particular, we're making very good progress in, you know, sort of commercial, you know, premium gaming notebooks, you know, premium consumer. We have more platforms coming with our Ryzen 5000 in our next generation. So, I think our, you know, sort of outlook is less dependent on what exactly happens in the market, but obviously, we watch the market very closely. And, you know, we work with our OEM partners very closely to, you know, to stay in tune with what they're seeing. Stacy Rasgon: Got it. Thank you. That's helpful. For my follow up, I want to ask the OpEx question a little more explicitly. So, you did it take it down for the year and you're 25%, but if I'm doing my math, right, the Q4 OpEx percentage is closer to 28. And I get why I understand, but I think the you given, 16 months ago had, sort of an OpEx to revenue midpoint somewhere in the mid-26s, should we think about OpEx, I guess trending down from that exit rate to that more, kind of like model level or are you still going to be taking this opportunity, at least for the next like several quarters, maybe do invest in at a bit of a higher level? Is that exit rate of up extra revenue more representative of what we might see in the near to medium-term? Devinder Kumar: Yeah, I think, Stacy, first of all, you hit a dry, the priority for this is they invest in the business for growth. We are growing significantly and just to cover the guidance. So, obviously, there's a lot of areas to invest in to support that growth, whether it's R&D or go to market or even hiring. Second of the year, you also have salary increases that kick-in for employees. And obviously, that does drive the OpEx higher, just given the guide we gave for Q3, which is higher than Q2 from an overall OpEx standpoint. As far as the numbers are concerned, I know you're probably running your model there, but you know, those numbers are approximate. And really, if you ask me, from an overall standpoint, I would expect that for the year, we come in a little under 25%. You know, we gave the approximate guidance of you know, 25%, but I think we'll come in under 25% for the year. Nothing extraordinary there, it's just you know, making sure we plan the business, support the growth, and make sure that into 2022, as we have new product introductions that Lisa just talked about, we continue to support that because there are lot of new products coming into 2022. So, really that's what it is Stacy. Stacy Rasgon: Got it. Thank you very much. Dr. Lisa Su: Thank you, Stacy. Operator, two more questions, please. Operator: Certainly. Our next question is coming from Blayne Curtis from Barclays. Your line is now live. Blayne Curtis: Hey, thanks for letting me ask questions. I just want to ask on the graphic strength. I think you said it doubled. Just curious, is there a way to parse-out how much is coming from crypto and then I think what I heard you say is in the back half, it's a driver for September just, you know, driver into December with PCs flat again, a kind of just maybe you could describe how much of the strength in graphics is, kind of more client graphics versus the data center? Dr. Lisa Su: Yeah, sure, Blayne. So, you know, to your question about the second quarter. You know, we do not believe there was a significant crypto component in our graphics revenue. I mean, the graphics revenue, as we see it is really RDNA 2 ramping. You know, we launched some new products in mobile and we're pleased with the reception of RDNA 2 in mobile, as well as we started shipments of some of our data center GPUs. So, you know, our view is that the crypto base component is really negligible. And then as we go into the second half of the year, I wouldn't say graphics is the largest driver of our business, you know the driver really is around data center. And, you know, that's data center across, you know, CPUs, as well as some of the early ramp of the GPUs. But, you know, we do expect, you know, there continues to be strong demand for gaming graphics. And, you know, we know there are a lot of gamers out there who are still looking to get some of their cards. And so, you know, we will support that, you know that demand, but I don't think crypto was a big piece of it. And, you know, we'll continue to focus our efforts on getting our gaming graphics over into the gamer’s hands. Blayne Curtis: Thanks. And maybe just a follow-up on the data center GPU opportunity, you've mentioned, you have some new wins with HPC and a couple of them are fairly chunky, just kind of curious when you think about that impact in the model. Is that a next year story or is it a bit further out? Dr. Lisa Su: Yeah. So, I mean, we'll see some growth in the second half of the year, you know, off of a small base. You know, I think it becomes a more meaningful driver as we go into next year, and then certainly the following year. So, think about the data center GPU story as sort of the early innings of, you know, what we did on the CPU side. You know, we're excited about the product, Blayne, I think it's a very exciting, you know, product with our next generation CDNA 2. I think, you know, we have won some early wins with HPC. You know, we're continuing to work with some cloud customers on the machine learning and AI aspects of it, but it's really a multi-year journey. And you know, the larger driver of our data center business is the server CPU side. Operator: Thank you. Our final question today is coming from Mark Lipacis from Jefferies. Your line is now live. Mark Lipacis: Hi, thanks for taking my questions. Lisa, I had a question about your announcement with Google for their Tau instances. I thought it was fascinating because it looks like they're disabling one of the threads and running Milan in a single threaded mode, which seems to me like a throwback to 20 years ago. So, I have a couple of questions on this. I haven't seen Intel Xeon Processors in this mode. Is there something about the AMD architecture, the Milan architecture beyond higher core count that just makes it more sense to use AMD processors in this mode versus Intel processors? Are you seeing a lot of demand outside of Google for this kind of single threaded implementation? And if you are, would it make sense to make a – like a separate line of CPUs that streamlines the logic for only one processing thread, and then you could fit, you know, potentially fit a lot more cores on the CPU and cut the power dissipation, it seems like it would be the next logical step. Would that even be feasible? Is that something you consider you're getting demand for? Thank you. Dr. Lisa Su: Sure. So mark. The way I would say is this and, you know, again, I want to be a little bit, sort of broad in how I answer the question. I think what you see in the server land is that there are lots of different used cases, you know, for the processors, and you know, you have some that are looking for, you know, sort of the bleeding edge performance, and there the, you know, the multi-threading is very, very useful. And, you know, you get better, you know, performance – per watt performance per dollar. And just overall, you know, socket level performance. I think, you know, what we've seen is that, as you look across used cases, or some used cases where you're more focused on performance per dollar than overall performance, and you might choose to optimize, you know, sort of, you know, what you do, you know, sort of how you configure the processor differently? I think what you'll see from us, Mark is, we're spending a lot of time with our hyperscale partners, and what we want to do is offer them the type of instance that they need and that their customers need. So, you'll see us do more customization, you know, across the board, with the idea of, you know, we want to satisfy that range of performance that, you know, across, you know, across, you know, sort of the entire range of used cases. So, you know, I think we'll talk more about how we think about, you know, the roadmap as we go forward, but I will say that, you know, we're being very thoughtful in ensuring that, you know, we have the right product for the right workload, and that it's optimized for performance and power and cost in all those areas. Mark Lipacis: Great, thank you. Very helpful. Appreciate it. Dr. Lisa Su: Thanks Mark. Operator: Thank you. We reached the end of our question-and-answer session. I'd like to turn the floor back over for any further closing comments. Laura Graves: Thank you, everyone. We appreciate your time today and certainly your interest in AMD. As always, we appreciate your support and we look forward to seeing you in an event here in Q3. Have a great day. Operator: Thank you. That does conclude today's teleconference and webcast. You may disconnect your line at this time and have a wonderful day. We thank you for your participation today.
AMD Downgraded as AI GPU Challenges Persist, Shares Down 2%
AMD (NASDAQ:AMD) shares fell more than 2% pre-market today after HSBC analysts downgraded the stock to Reduce from Buy, slashing the price target nearly in half to $110 from $200. The move reflects concerns over AMD's competitive position in the AI GPU market and potential setbacks in its product roadmap.
The analysts highlighted tepid demand for AMD's new MI325 GPU and potential delays in the launch of a competitive AI rack solution as key factors limiting the company’s ability to gain ground against market leader Nvidia. This outlook led to a significant downward revision in AMD's fiscal 2025 AI GPU revenue projections, which were reduced from $12.3 billion to $8.1 billion—well below the market consensus of $9.5 billion.
While AMD’s share price has already declined 24% over the past three months, the analysts see further downside. They noted that AMD’s penetration into the AI GPU market is likely to be much weaker than previously expected, further weighing on its valuation.
The company’s product roadmap remains on track with the MI350 chip expected to launch in the second half of 2025. However, the analysts believe AMD’s ability to compete directly with Nvidia’s NVL rack platform will be delayed until late 2025 or early 2026, coinciding with the anticipated launch of the MI400.
AMD Positioned for Significant Upside in 2025
Northland analysts reaffirmed an Outperform rating and a $175 price target for AMD (NASDAQ:AMD), highlighting the company’s strong position across AI GPUs, server CPUs, and PC clients. With headwinds in the embedded and gaming segments easing, AMD is set to deliver substantial growth through 2025.
AMD’s gains in the AI market are driven by its competitive roadmap and superior total cost of ownership (TCO). AI-related revenue is projected to surge to $9.5 billion in 2025, up from $5.2 billion, reflecting a 7% increase in the first half of the year compared to the second half of 2024. The ramp-up of AMD’s MI325X chip is expected to be a game-changer, offering hardware performance competitive with NVIDIA’s H200. While software remains a key challenge, AMD’s hardware advancements put it in a strong position for growth, according to the analysts.
In the server market, AMD continues to outpace Intel, with early indications showing its Turin CPUs outperform Granite Rapids in most workloads. Non-AI data center revenue is forecasted to grow by 26% year-over-year in 2024 to $7.7 billion, with an additional 10% growth projected in 2025. These estimates are considered conservative, leaving room for upside potential.
The PC client segment also offers a compelling growth story. With Microsoft ending support for Windows 10, an estimated 1.2 billion systems will need upgrading. AMD is poised to benefit, with approximately 40% of these systems, or 480 million units, expected to be replaced over the next 18 months. Despite elevated channel inventory in the PC market, AMD’s inventory levels are healthy, and spot shortages highlight robust demand for its products.
With leadership across key markets, a strong product pipeline, and favorable industry tailwinds, AMD is well-positioned for substantial upside, making it a top pick for 2025 at Northland.
Bank of America Downgrades AMD Amid Concerns Over AI Competition and PC Market Slowdown
Advanced Micro Devices (NASDAQ:AMD) shares fell nearly 2% pre-market today after Bank of America downgraded the company to Neutral from Buy, citing potential risks to its 2025 outlook. The firm also reduced its price target from $180 to $155 and cut its 2025/26 earnings estimates by 6% and 8%, respectively, reflecting a significant 13-23% gap from consensus projections.
Two key factors contributed to the downgrade. First, Bank of America expressed concerns over competitive pressures in the AI sector. NVIDIA and custom chip providers like Marvell and Broadcom were highlighted as major players that could hinder AMD’s market share growth in AI accelerators. The firm pointed to signals from Amazon, AMD’s largest cloud customer, which indicated a preference for custom solutions such as Trainium, Marvell, and NVIDIA products, limiting demand for AMD’s offerings. Similar trends were observed among other cloud giants like Google.
Bank of America projected that AMD would hold just 4% of the $200 billion AI accelerator market by 2025, far behind NVIDIA’s dominant share of over 80%.
The second concern centered on the potential for a correction in the PC processor market. AMD’s client PC sales had surged 40% in the latter half of 2024, but the firm anticipated a slowdown in the first half of 2025, which could challenge the company’s growth trajectory.
Despite these challenges, the note acknowledged AMD’s strong execution and its ability to capitalize on Intel’s ongoing restructuring issues, which provide opportunities for AMD to expand its market share in PC and server CPUs. Additionally, the company’s partnerships with Microsoft, Meta, and Oracle were viewed as strategic positives.
However, Bank of America tempered its outlook by emphasizing that AMD’s prospects in the AI sector remain limited, reducing the likelihood of the company exceeding Street estimates.
Marjorie Taylor Greene Invests in Advanced Micro Devices (AMD) Amid Semiconductor Export Restrictions
- Marjorie Taylor Greene has purchased shares in Advanced Micro Devices Inc (NASDAQ:AMD), a key player in the semiconductor industry.
- The outgoing Biden administration is planning to impose new restrictions on semiconductor exports to China, potentially impacting AMD and its competitors.
- AMD offers a more attractive investment opportunity compared to Nvidia, trading at 28 times forward earnings and positioned to benefit from AI growth.
On November 25, 2024, Marjorie Taylor Greene made a purchase of shares in Advanced Micro Devices Inc (NASDAQ:AMD). AMD is a prominent player in the semiconductor industry, competing with companies like Nvidia. The company is known for its microprocessors and graphics cards, which are integral to various computing applications.
The outgoing Biden administration plans to impose new restrictions on the export of semiconductor equipment and AI microchips to China. This move is expected to affect global chipmakers, including AMD and Nvidia, as highlighted by Proactive Investors. However, sources suggest these measures will be less stringent than initially proposed, potentially easing the impact on these companies.
Nvidia has seen a significant 180% increase in its stock this year, reaching a market cap of nearly $3.5 trillion. Despite this growth, Nvidia's high valuation of approximately 48 times the consensus FY2025 earnings may limit future gains. In contrast, AMD presents a more attractive investment opportunity, trading at 28 times forward earnings. This positions AMD to benefit from AI growth while offering better value to investors.
AMD's stock is currently experiencing a bearish trend, with its price at $142.68, below its five-day, 20-day, and 50-day EMAs. The 20-day SMA is at $141.97, and the 50-day SMA is at $153.29, indicating declining momentum. The stock is also trading below its 200-day SMA of $160.23, suggesting long-term bearish pressure.
Despite these challenges, there is potential for a short-term rebound. The eight-day SMA at $138.81 offers a slight bullish indication. However, the RSI of 46.42 remains neutral, indicating the stock is neither oversold nor overbought. Currently, AMD's stock price is $136.24, reflecting a decrease of 1.48, or approximately -1.07%.
AMD Shares Drop 7% on Disappointing Q4 Guidance Despite Strong Q3 Results
Advanced Micro Devices (NASDAQ:AMD) reported third-quarter earnings that matched expectations, but shares fell more than 7% in after-hours trading as the company’s fourth-quarter revenue outlook came in below analyst estimates.
AMD posted adjusted earnings per share of $0.92 for Q3, in line with projections, while revenue reached $6.82 billion, surpassing the anticipated $6.71 billion and marking a 22% year-over-year increase. The strong results were driven by record sales of EPYC and Instinct data center products, alongside robust demand for Ryzen PC processors.
However, AMD’s Q4 revenue guidance, set at $7.5 billion plus or minus $300 million, fell short of investor hopes, with the midpoint below the Street estimate of $7.55 billion.
The Data Center segment was a bright spot, with revenue more than doubling year-over-year to $3.5 billion, while the Client segment saw a 29% rise, reaching $1.9 billion. In contrast, the Gaming segment experienced a steep 69% decline, with revenue dropping to $462 million, dampening overall growth momentum.
Barclays Maintains "Overweight" Rating on Advanced Micro Devices Inc (NASDAQ:AMD)
- Barclays reiterates its "Overweight" rating for NASDAQ:AMD, highlighting the company's strong position in the semiconductor industry.
- AMD's focus on AI and next-generation chips is expected to drive significant growth, with the TAM for AI accelerators projected to reach $800 billion by 2028.
- Despite challenges such as high valuation and potential competition from customers developing their own CPUs and GPUs, AMD's strategic investments in AI infrastructure are poised to enhance its market share and revenue.
On October 11, 2024, Barclays reiterated its "Overweight" rating for Advanced Micro Devices Inc (NASDAQ:AMD), maintaining its previous grade. At the time of this announcement, AMD's stock price was $167.08. AMD is a leading player in the semiconductor industry, known for its CPUs and GPUs. It competes with companies like Nvidia and Intel.
AMD has made significant strides in the tech industry, marked by strategic moves such as hiring Jim Keller and transitioning to TSMC for manufacturing. These efforts have bolstered AMD's market position. The company's latest GPUs are poised to compete directly with Nvidia's upcoming Blackwell series, which could potentially pressure Nvidia's profit margins while enhancing AMD's market performance.
AMD's recent "Advancing AI" presentation highlighted the impressive performance capabilities of its next-generation chips, which are crucial for sustaining the company's growth outlook. The company forecasts that the total addressable market (TAM) for AI accelerators will expand at a compound annual growth rate (CAGR) of 60% over the next five years, reaching $800 billion by 2028. This strategic focus on AI innovations reinforces AMD's trajectory towards a potential stock price of $200.
Despite these positive developments, AMD faces risks due to its high valuation and the possibility that customers might start developing their own CPUs and GPUs. This could impact the long-term demand for AI-related products. However, AMD's increasing involvement in various key areas of the AI infrastructure ecosystem, including software, hardware, and cluster-level systems, is expected to bolster its revenue share in the long term.
Currently, AMD's stock price is $167.68, reflecting an increase of 2.13% or $3.50. Today, the stock has fluctuated between a low of $163.01 and a high of $167.79. Over the past year, AMD's stock has reached a high of $227.30 and a low of $93.12. The company has a market capitalization of approximately $271.39 billion, with a trading volume of 24,377,529 shares on the NASDAQ.
NASDAQ:AMD Acquires ZT Systems to Bolster AI Capabilities
- AMD's acquisition of ZT Systems for $4.9 billion aims to enhance its position in the artificial intelligence sector, competing closely with industry giants.
- The company's financial health is robust, with net cash from operating activities at $593 million, indicating strong operational efficiency and the ability to support strategic investments.
- Strategic financial management is highlighted by AMD's prudent investment and financing activities, maintaining a strong liquidity position with $3.962 billion in cash despite significant outflows.
NASDAQ:AMD's recent announcement to acquire ZT Systems for $4.9 billion marks a significant move aimed at bolstering its position in the artificial intelligence sector. This strategic acquisition is expected to enrich AMD's product offerings, potentially setting the stage for enhanced market competitiveness and growth. AMD, a key player in the semiconductor industry, competes with giants like Intel and NVIDIA, particularly in areas of CPUs and GPUs. This acquisition could provide AMD with a crucial edge in the rapidly evolving AI market.
The financial health of AMD, as reported for the recent quarter, showcases a company in a strong position to undertake such a substantial acquisition. With net cash provided by operating activities reaching $593 million, AMD demonstrates robust operational efficiency. This financial metric is crucial as it indicates the company's ability to generate cash from its core business operations, which is essential for supporting expansion and strategic investments like the acquisition of ZT Systems.
However, AMD's financial activities also highlight its prudent approach to managing its resources. The company's investment activities accounted for an outflow of $386 million, with capital expenditures of $154 million. This level of spending on investing activities is indicative of AMD's commitment to fostering growth and innovation. Moreover, the financing activities leading to a net cash outflow of $1.056 billion, primarily due to debt repayment of $750 million, reflect AMD's strategic focus on strengthening its balance sheet by reducing liabilities.
Despite these significant cash outflows, AMD managed to maintain a strong liquidity position, ending the period with $3.962 billion in cash. This slight decrease in working capital by $608 million, when viewed in the context of its acquisition plans and debt repayment, underscores AMD's effective financial management and strategic planning capabilities.
The acquisition of ZT Systems, therefore, is not just a strategic move to enhance AMD's portfolio in artificial intelligence but also a testament to the company's solid financial foundation and its ability to pursue growth opportunities. With a clear focus on expanding its technological capabilities and maintaining a healthy financial status, AMD is well-positioned to navigate the competitive landscape of the semiconductor industry.
