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Advanced Micro Devices: buy, sell or hold?


For the fourth quarter, the US microchip maker Advanced Micro Devices NASDAQ:AMD achieved earnings per stock of $0.69 (£0.56) on revenues of $5.6 billion (£4.5 bn) – up 16% from a year ago. For the period, the company posted gross margins of 43% – this time down 7%.

Advanced Micro Devices stock is up 55% over the last six months, but it has been struggling more recently.  Shares have given up over 7% in the last 30 days, which is a trend company management will be hoping to reverse, although with several large US funds selling into the market in April this could prove hard.

Depreciation of Xilinx assets

The depreciation of some assets of Xilinx, which AMD acquired a year ago, affected the quarterly results. The Wall Street consensus for earnings per stock was $0.67 (£0.54) per stock on revenue of $5.5 billion (£4.4 bn). AMD expects revenue to be between $5 billion (£4.02 bn) and $5.6 billion (£4.5 bn). That’s down 10% from last year, but above Wall Street’s consensus of $5.56 billion (£4.47 bn).

Adjusted gross margins are projected to be around 50 per cent for the period.

AMD launched a new generation of data centre chips called Genoa in November and plans to re-release a more powerful version called Genoa-X later this year. Agreements have already been reached with: Google, Azure and Oracle​.

In the fourth quarter of 2022, data centre sales rose 42 percent to $1.7 billion (£1.36 bn) from the previous year. CEO Lisa Suh said that overall AMD is in a stable position to increase market stock and performance should improve by the second half of 2023.

Bridgewise rated AMD an Underperform when based against its US tech sector peers, although the recently launched MA35D media accelerator devices launch must be viewed in a positive light. The stock attracted a fundamental rating of 57/100 with the latest income statement rated just 50/100 against peers.

There are some bright spots in the overall analysis however: the stock continues to score well on cash and equivalents and its total assets index also looks respectable at 79/100.  Long term the technical performance of the stock remains in the green with a 50 day MA at 88.01 and 78.31 over 200 days, according to Tuesday’s data.

Advanced Micro Devices

Advanced Micro Devices is operating in a tough sector, with several of its competitors also looking poorly – NVIDIA NASDAQ:NVDA looks to be struggling more on the cash flow front against peers and is underperforming the proprietary AI-generated benchmark Bridgewise set for AMD.

A new world order for the microchip game?

Investors have been trying to envisage what the New World Order is going to look like for AMD after the US ban on chip exports to China last year. The company will need to adapt to a market that could still contain benefits. Keybanc just put out an Overweight recommendation on 11 April for the stock with a suggested 3.9% upside. The average one year price target for the stock is $99.20.

Overall funds have been trimming their position in the company, based on an evaluation for the last quarter.

AMC’s results came out with many investors now focused on the upcoming IPO of Arm Holdings on NASDAQ. Arm is expected to list in the US in the autumn amidst much fanfare. Some investors have said they are having trouble coming up with an accurate valuation for Arm, which was bought by Softbank in 2016 for £24bn. A realistic valuation could be as low as $30bn.

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This article does not constitute investment advice. Make sure you do your own research or consult a professional advisor.

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