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Can Advanced Micro Devices stock build on momentum off huge sales growth?


Advanced Micro Devices Inc (NASDAQ:AMD) stock has slipped marginally off some of the recent highs the company was able to achieve, but analysts are feeling bullish and say there is more to come.

Huge sales growth for Advanced Micro Devices

Certainly CEO Lisa Su was impressive on a recent analysts call where she said that she expected data centre product revenue to grow significantly. Su told the market AMD has a strong pipeline of new cloud, enterprise and high performance computing wins. AMD had reported already that data center revenue has more than doubled and that it is seeing record quarterly sales.

AMD reported massive sales growth in its embedded and semi-custom chips business – it was $1.35bn compared with $348m a year ago. It has seen huge growth in its gaming console business but is not currently breaking console and data centre sales out into separate reporting items.

Su also told analysts that she could see the good year coming from a ways off, demonstrating that at least in this business, some sales are predictable. Data centres and gaming are very hot areas to be in right now so it comes as no surprise to us to see AMD stock doing well.

First quarter net income was $555m, 44 cents a share based on revenue of $3.18 billion. First quarter sales were $2.1bn for computing and graphics chips, a gain of 44% against last year. Advanced Micro Devices full year guidance has been increased to 50% increase on sales (up from 37%). Second quarter revenue is expected to be in the region of between $3.5bn and $3.7bn.

Investors have had a good run with AMD stock

Holders of AMD stock have had a good run of it in the last 12 months. The stock actually started taking off in September 2019, well before the pandemic started, climbing from around the 28 cents level to hit 53 cents in mid-February 2020. The impact of the pandemic in March failed to take the shares down even close to where they were in Q4 2019. AMD’s stock price then soared to hit 85 cents in August last year and hit a recent peak of 95 cents in mid-December.

Since then shares have failed to push on to new highs. Indeed we have seen somewhat of a sell-off. Shares could be had for under 80 cents recently. Over the last few sessions AMD stock price action has seen the shares pop up from 79 cents to the mid-80s. The big question is whether the stock can stage some further gains given Su’s bullish comments with Wall Street analysts yesterday.

Investors will have trousered over 50% in the last 12 months but the PE is creeping up on AMMD and it starting to look more expensive at 36.17. Net income versus total revenues has dropped and the company is reporting an operating margin of 15.71%. Cash flow per share is 2.63 and debt is low. On the surface of it Advanced Micro Devices looks like a good stock but we are concerned that some investors are still selling out even after such an excellent set of earnings.

In some respects Su has telegraphed the company’s excellent numbers well in advance, and the market would have been disappointed to see anything less. We do like the sound of the pipeline of new business the company is bringing on board in 2021 and it is well positioned at the vital infrastructure end of a very important part of the economy.

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This article does not constitute investment advice. Do your own research or consult a professional advisor.

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