AMD (NASDAQ:AMD) Beats Expectations in Strong Q1, Upgrades Full Year Guidance

Radek Strnad /
2022/05/03 4:24 pm EDT
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Computer processor maker AMD (NASDAQ:AMD) reported Q1 FY2022 results beating Wall St's expectations, with revenue up 70.8% year on year to $5.88 billion. Guidance for next quarter's revenue was $6.5 billion at the midpoint, 2.24% above the average of analyst estimates. AMD made a GAAP profit of $786 million, improving on its profit of $555 million, in the same quarter last year.

Is now the time to buy AMD? Access our full analysis of the earnings results here, it's free.

AMD (AMD) Q1 FY2022 Highlights:

  • Revenue: $5.88 billion vs analyst estimates of $5.57 billion (5.62% beat)
  • EPS (non-GAAP): $1.13 vs analyst estimates of $0.93 (22% beat)
  • Revenue guidance for Q2 2022 is $6.5 billion at the midpoint, above analyst estimates of $6.35 billion
  • The company lifted revenue guidance for the full year, from $21.5 billion to $26.3 billion at the midpoint, a 22.3% increase driven by the addition of Xilinx and higher server and semi-custom revenue
  • Free cash flow of $924 million, up 25.5% from previous quarter
  • Inventory Days Outstanding: 72, down from 74 previous quarter
  • Gross Margin (GAAP): 47.8%, up from 46% same quarter last year

Excluding Xilinx, AMD had record quarterly revenue of $5.3 billion, non-GAAP gross margin of 51% and non-GAAP operating margin of 30%. “The first quarter marked a significant inflection point in our journey to scale and transform AMD as we delivered record revenue and closed our strategic acquisition of Xilinx,” said AMD Chair and CEO Dr. Lisa Su.

Founded in 1969 by a group of former Fairchild semiconductor executives led by Jerry Sanders, Advanced Micro Devices or AMD (NASDAQ:AMD) is one of the leading designers of computer processors and graphics chips used in PCs and data centers.

The biggest demand drivers for processors (CPUs) and graphics chips at the moment are secular trends related to 5G and Internet of Things, autonomous driving, and high performance computing in the data center space, specifically around AI and machine learning. Like all semiconductor companies, digital chip makers exhibit a degree of cyclicality, driven by supply and demand imbalances and exposure to PC and Smartphone product cycles.

Sales Growth

AMD's revenue growth over the last three years has been impressive, averaging 48.8% annually. And as you can see below, last year has been especially strong, with quarterly revenue growing from $3.44 billion to $5.88 billion. Semiconductors are a cyclical industry and long-term investors should be prepared for periods of high growth, followed by periods of revenue contractions (which can sometimes offer opportune times to buy).

AMD Total Revenue

This was a fantastic quarter for AMD with 70.8% revenue growth, beating analyst estimates by 5.62%. This marks 11 straight quarters of revenue growth, which means the current upcycle has had a good run, as a typical upcycle tends to be 8-10 quarters.

However, AMD believes the growth is set to continue, and is guiding for revenue to grow 68.8% YoY next quarter, and Wall St analysts are estimating growth 43% over the next twelve months.

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Product Demand & Outstanding Inventory

Days Inventory Outstanding (DIO) are an important metric for chipmakers, as it reflects the capital intensity of the business and the cyclical nature of semiconductor supply and demand. In a tight supply environment, inventories tend to be stable, allowing chipmakers to exert pricing power. Steadily increasing DIO can be a warning sign that demand is weak, and if inventories continue to rise the company may have to downsize production.

AMD Inventory Days Outstanding

This quarter, AMD’s inventory days came in at 72, 10 days below the five year average, showing no indication of an excessive inventory buildup at the moment.

Key Takeaways from AMD's Q1 Results

With a market capitalization of $145 billion, more than $6.53 billion in cash and with free cash flow over the last twelve months being positive, the company is in a very strong position to invest in growth.

We were impressed by how strongly AMD outperformed analysts’ earnings expectations this quarter. And we were also glad to see the improvement in operating margin. Zooming out, we think this was a fantastic quarter that should have shareholders cheering. The company is up 3.16% on the results and currently trades at $94.07 per share.

AMD may have had a good quarter, so should you invest right now? It is important that you take into account its valuation and business qualities, as well as what happened in the latest quarter. We look at that in our actionable report which you can read here, it's free.

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The author has no position in any of the stocks mentioned.