An AMD processor. Growth in demand for chips used in PCs is expected to slow, while analysts are upbeat about the outlook for servers.
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While the recent downdraft in high-price tech shares has taken a particular toll on software stocks, chip makers haven’t been immune. Consider, for instance, Advanced Micro Devices . The microprocessor company’s stock was down 21% for the year through Monday, leaving it 29% below its peak in late Novembe.
Advanced Micro (ticker: AMD) gets a chance to shift investor sentiment after the close of trading Tuesday, when the company reports its fourth-quarter financial results. The company has projected revenue of $4.5 billion, give or take $100 million, with a gross margin of 49.5%. For all of 2021, AMD has forecast 65% revenue growth, and a gross margin of 48%.
The Wall Street consensus for the quarter calls for $4.5 billion in revenue, up 39.5% from a year earlier, with profits of 76 cents a share. For the full year, the Street expects $16.1 billion in revenue, up 65.3%, and profits of $2.64 a share.
For the March quarter, the Street consensus call is for $4.3 billion in revenue and profits of 70 cents a share. For all of 2022, the consensus expectation is for $19.3 billion in revenue, up 19.4%, and profits of $3.36 a share.
One issue for AMD shares is that investors continue to award the company a higher valuation than its rivals, particularly Intel (INTC). While AMD trades for about 34 times projected 2022 per-share profits and about seven times estimated sales, Intel shares change hands for nine times forward earnings and less than three times sales.
Intel shares are down a relatively modest 5% year to date.
Meanwhile, there are some crosscurrents in the broader chip environment. PC sales appear to have been better in the fourth quarter than the Street had expected, as investors can see from both Microsoft’s December quarter results and Apple
‘s strong Mac sales in the same period. But there is widespread anticipation that a post-pandemic slowdown in PC sales will inevitably emerge in 2022.
Data-center demand appears strong, on the other hand. Microsoft said that it expects an acceleration in revenues for its Azure cloud-compuing business in the March quarter. That implies more need for servers and server chips.
Supply-chain issues remain widespread. Intel had a better-than-expected quarter but said it could have had an even better performance if there was more capacity.
BofA Global Research analyst Vivek Arya said in a research note that he sees “modest beats” for both the fourth-quarter results and AMD’s first-quarter guidance. But he sees other items to focus on, including full- year guidance, with hopes that the company targets revenue growth in the 20% to 30% range and boosts its forecast for gross margin above 50%, driven by a shift in its product mix to higher-end server and PC processors.
Arya said AMD stock remains a “top pick,” with the potential for continued market-share gains. He noted that while supply constraints remain an issue in the chip sector generally, AMD has a healthy foundry partnership with Taiwan Semiconductor Manufacturing (TSM).
Susquehanna Financial Group analyst Christopher Rolland likewise expects a solid result, driven by both the PC and server sector. He said AMD’s forecasts for 2022 will reflect slower PC growth, but that he sees strength ahead in servers. Rolland thinks the company can top $3 billion in server-processor sales in 2021, with more than 100% year over year growth.
Lynx Equity Strategies analyst KC Rajkumar is more skeptical. The “risk-reward for AMD has gotten complicated to the point that it is not prudent to own the stock, even at current levels,” he said in a research note Tuesday morning. For one thing, he noted, the market is “no longer supportive of high-growth, high-multiple names.”
He also sees signs that Intel is narrowing the gap with AMD in product design and process technology, arguing that Intel has caught up in high-end PC processors. And he thinks that the pending AMD acquisition of slower-growth Xilinx creates an overhang on the stock.
“Even if the earnings call today provides upside surprise, we expect the stock spike to be short-lived as investors take profits and move to the sidelines,” he wrote.
Early Tuesday, AMD shares were up 0.7%, to $115.18.
Write to Eric J. Savitz at [email protected]
