AMD (NASDAQ:AMD) Exceeds Q4 Expectations But Quarterly Guidance Underwhelms

Jabin Bastian /
2023/01/31 4:20 pm EST
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Computer processor maker AMD (NASDAQ:AMD) reported Q4 FY2022 results beating Wall St's expectations, with revenue up 16% year on year to $5.59 billion. However, guidance for the next quarter was less impressive, coming in at $5.3 billion at the midpoint, being 3.75% below analyst estimates. AMD made a GAAP profit of $21 million, down on its profit of $974 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) Q4 FY2022 Highlights:

  • Revenue: $5.59 billion vs analyst estimates of $5.51 billion (1.5% beat)
  • EPS (non-GAAP): $0.69 vs analyst estimates of $0.67 (2.53% beat)
  • Revenue guidance for Q1 2023 is $5.3 billion at the midpoint, below analyst estimates of $5.5 billion
  • Free cash flow of $443 million, down 47.3% from previous quarter
  • Inventory Days Outstanding: 125, up from 110 previous quarter
  • Gross Margin (GAAP): 50.8%, up from 50.2% same quarter last year

“2022 was a strong year for AMD as we delivered best-in-class growth and record revenue despite the weak PC environment in the second half of the year," 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 54.6% annually. But as you can see below, last year has not been especially strong, with quarterly revenue growing from $4.82 billion to $5.59 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 an OK quarter for AMD with revenues growing 16%, ahead of analyst estimates by 1.5%. This marks 14 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.

AMD's revenue growth is expected to go negative next quarter, with the company guiding to decline of 9.97% YoY next quarter, but analyst consensus sees growth of 6.18% 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 125, 38 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 Q4 Results

With a market capitalization of $116 billion, more than $5.85 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.

It was good to see AMD outperform Wall St’s 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 unfortunate to see that the revenue guidance for the next quarter missed analysts' expectations and inventory levels increased. Overall, this quarter's results could have been better. The company is up 3.59% on the results and currently trades at $77.9 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.