Analysis: AMD INTC

Leading up to Advanced Micro Devices (AMD) reporting its June-quarter results Tuesday night, and following Intel's (INTC) very recent disastrous earnings report, AMD shares soared 16% compared to a 5% rise in the Nasdaq Composite and an almost 3% increase in the S&P 500. Clearly, Intel's market-share loss, particular in data center, fueled high expectations for AMD's earnings report.

For its June quarter, AMD's adjusted earnings were $1.05 per share, topping analysts' estimates by $0.02, with its revenue soaring 70.1%, year over year, to $6.55 billion, slightly ahead of the $6.53 billion consensus. Let's remember that year-over-year comparison includes the addition of Xilinx, but AMD quickly pointed out its data center business soared 83%. Strength in that business and in AMD's Embedded segment is expected to fuel growth in the coming quarters, offsetting weakness in its Client segment, which includes its desktop and notebook PC processors and chipsets-facing business, as well as its Gaming segment through the balance of 2022. Those end-market dynamics are not "breaking news" given what we've heard so far in this earnings season. That said, AMD now sees the PC market dropping by a "teens" percentage this year vs. its prior expectations for a low-single-digit decline.

Relative to expectations, once again AMD delivered a good quarter, especially with the backdrop the market is currently facing. However, its guidance, while also good, didn't measure up to the expectations that had been built up in the share price. With AMD widening out its revenue guidance for both the current quarter and full-year 2022, so far this morning its shares are giving back some of their recent gains. For the September quarter, AMD sees revenue in the range of $6.5 billion-$6.9 billion vs. the $6.83 billion consensus, and for 2022 it's now calling for $26.0 billion-$26.6 billion vs. the $26.2 billion consensus and its own prior guidance of $26.3 billion. It's that widening to the downside, due largely to the expected weakness in the PC market that is weighing on AMD shares.

The other side of that, however, is that even though AMD's guidance was widened to the downside, it not only raised its 2022 revenue forecast but its outlook was still significantly better than the revenue chop delivered by Intel. As a reminder, Intel guided its current quarter revenue to $15 billion-$16 billion vs. the $18.67 billion consensus. To us that's a clear signal of the market-share gains AMD is making on Intel, most likely in the data center market and in others as well. The test for AMD shares in the coming quarters will be to grow its market share in PC and Gaming even as those markets decline. The proof of that will be AMD delivering comparatively better revenue in the back half of the year compared to Intel and others. Based on what we've seen in the past and factoring in ramping product wins, we give this a rather high degree of happening.

Over the last few weeks, we've made a number of price target adjustments to our Action Alerts PLUS portfolio holdings. Admittedly, we've sat on the sidelines with our AMD price target of $160, waiting for the company's outlook for the balance of 2022. With that in hand now, and taking a more cautious view on valuation metrics, we are lowering our long-term price target on AMD to $140 from $160. This keeps our One rating intact, but we acknowledge the real share price performance will come as AMD continues to prove it is winning market share in all of its business segments.