AMD (NASDAQ:AMD) Delivers Impressive Q3, Provides Optimistic Guidance For Next Quarter

Radek Strnad /
2021/10/26 4:26 pm EDT
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Computer processor maker AMD (NASDAQ:AMD) reported Q3 FY2021 results topping analyst expectations, with revenue up 53.9% year on year to $4.31 billion. Guidance also came in very strong with next quarter revenues guided to $4.5 billion, or 5.94% above analyst estimates. AMD made a GAAP profit of $923 million, improving on its profit of $390 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) Q3 FY2021 Highlights:

  • Revenue: $4.31 billion vs analyst estimates of $4.11 billion (4.85% beat)
  • EPS (non-GAAP): $0.73 vs analyst estimates of $0.66 (10% beat)
  • Revenue guidance for Q4 2021 is $4.5 billion at the midpoint, above analyst estimates of $4.24 billion
  • Free cash flow of $764 million, down 13.9% from previous quarter
  • Inventory Days Outstanding: 78, down from 80 previous quarter
  • Gross Margin (GAAP): 48.3%, up from 43.9% same quarter last year

“AMD had another record quarter as revenue grew 54% and operating income doubled year-over-year,” said AMD president 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 fabless designers of computer processors and graphics chips used in PCs and data centers.

Sales Growth

AMD's revenue growth over the last three years has been very strong, averaging 37.4% annually. And as you can see below, last year has been especially strong, with quarterly revenue growing from $2.8 billion to $4.31 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 53.9% revenue growth, beating analyst estimates by 4.85%. This marks 9 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 still grow next quarter, and Wall St analysts are estimating growth 18.8% over the next twelve months.

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Product Demand & Outstanding Inventory

Days Inventory Outstanding (DIO) are an important metric for chipmakers, as the cyclical nature of semiconductor supply and demand impacts profitability. In a tight supply environment, inventories tend to be low, allowing chipmakers to exert pricing power, which helps increase gross margins. The inverse also applies, as rising inventory levels tend to foreshadow weakening pricing power and declining gross margins.

AMD Inventory Days Outstanding

This quarter, AMD’s inventory days came in at 78, 5 days below the five year average, showing no indication of an excessive inventory buildup at the moment.

Key Takeaways from AMD's Q3 Results

With a market capitalization of $148 billion, more than $3.6 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 excited to see the really strong revenue growth. Zooming out, we think this was a fantastic quarter that should have shareholders cheering. The company is up 1.56% on the results and currently trades at $124.86 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.