AMD (NASDAQ:AMD) Exceeds Q1 Expectations But Quarterly Guidance Underwhelms

Jabin Bastian /
2023/05/02 4:21 pm EDT

Computer processor maker AMD (NASDAQ:AMD) reported results in line with analyst expectations in Q1 FY2023 quarter, with revenue down 9.07% year on year to $5.35 billion. However, guidance for the next quarter was less impressive, coming in at $5.3 billion at the midpoint, being 3.73% below analyst estimates. AMD made a GAAP loss of $139 million, down on its profit of $786 million, in the same quarter last year.

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AMD (AMD) Q1 FY2023 Highlights:

  • Revenue: $5.35 billion vs analyst estimates of $5.31 billion (0.84% beat)
  • EPS (non-GAAP): $0.60 vs analyst estimates of $0.56 (6.5% beat)
  • Revenue guidance for Q2 2023 is $5.3 billion at the midpoint, below analyst estimates of $5.51 billion
  • Free cash flow of $328 million, down 26% from previous quarter
  • Inventory Days Outstanding: 143, up from 125 previous quarter
  • Gross Margin (GAAP): 49.8%, down from 51% same quarter last year

“We executed very well in the first quarter as we delivered better than expected revenue and earnings in a mixed demand environment,” 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 exceptional, averaging 50.5% annually. But as you can see below, last year quarterly revenue declined from $5.89 billion to $5.35 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

Despite AMD revenues beating analyst estimates, this was still a slow quarter with a 9.07% revenue decline. AMD's revenue is continuing to decline, signal that the current downcycle is deepening.

Year on year revenue growth went from positive to negative this quarter, and is expected to stay negative next quarter with an estimated decline of 19.1% YoY while analysts expect revenues to turn positive over the next twelve months with growth of 8.49% 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 143, 53 days above the five year average, suggesting that that inventory has grown to higher levels than what we used to see in the past.

Key Takeaways from AMD's Q1 Results

With a market capitalization of $144 billion, more than $5.94 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 happy to see it topped analysts’ revenue expectations, even if just narrowly. On the other hand, it was less good to see that the revenue growth was quite weak and the revenue guidance for the next quarter missed analysts' expectations. Free cash flow in the quarter also missed. Overall, this quarter's results were not the best we've seen from AMD. The company is down 2.49% on the results and currently trades at $87.68 per share.

AMD may have had a tough quarter, but does that actually create an opportunity to 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.