AMD (NASDAQ:AMD) Reports Q2 In Line With Expectations But Quarterly Guidance Underwhelms

Adam Hejl /
2022/08/02 4:15 pm EDT
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Computer processor maker AMD (NASDAQ:AMD) reported results in line with analyst expectations in Q2 FY2022 quarter, with revenue up 70.1% year on year to $6.55 billion. Guidance for the full year also exceeded estimates, however the guidance for the next quarter was less impressive, coming in at $6.7 billion, 1.94% below analyst estimates. AMD made a GAAP profit of $447 million, down on its profit of $710 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) Q2 FY2022 Highlights:

  • Revenue: $6.55 billion vs analyst estimates of $6.52 billion (small beat)
  • EPS (non-GAAP): $1.05 vs analyst estimates of $1.04 (1.41% beat)
  • Revenue guidance for Q3 2022 is $6.7 billion at the midpoint, below analyst estimates of $6.83 billion
  • The company reconfirmed revenue guidance for the full year, at $26.3 billion at the midpoint
  • Free cash flow of $906 million, roughly flat from previous quarter
  • Inventory Days Outstanding: 77, up from 72 previous quarter
  • Gross Margin (GAAP): 52.4%, up from 47.5% same quarter last year

“We delivered our eighth straight quarter of record revenue based on our strong execution and expanded product portfolio,” 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 55.7% annually. And as you can see below, last year has been especially strong, with quarterly revenue growing from $3.85 billion to $6.55 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 70.1% revenue growth, beating analyst estimates by 0.31%. This marks 12 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 55.3% YoY next quarter, and Wall St analysts are estimating growth 31.7% over the next twelve months.

In volatile times like these we look for robust businesses with strong pricing power. Unknown to most investors, this company is one of the highest-quality software companies in the world, and their software products have been the default standard in critical industries for decades. The result is an impressive business that is up an incredible 18,152% since the IPO. You can find it on our platform for free.

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 77, 4 days below the five year average, showing that despite the recent increase there is no indication of an excessive inventory buildup at the moment.

Key Takeaways from AMD's Q2 Results

With a market capitalization of $156 billion, more than $5.99 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 very impressed by the strong improvements in AMD’s gross margin this quarter. And we were also glad to see the improvement in operating margin. 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 still seemed pretty positive and shareholders can feel optimistic. But investors might have been expecting more and the company is down 4.73% on the results and currently trades at $94.54 per share.

Should you invest in AMD 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.