Intel’s ache could possibly be AMD’s achieve

Not solely did Intel report a 16% drop in gross sales to $4.6 billion in data-center gross sales, Chief Govt Pat Gelsinger reminded analysts he expects Intel data-center gross sales to develop slower than the general market. But analysts on common count on a lot bigger progress than the general marketplace for AMD, and people expectations seem like rising.

Opinion: Which Intel CEO is to blame for the current woes? Or is it actually AMD’s CEO?

Wells Fargo analysts checked in after the Intel report back to say that they now count on that AMD’s server CPU enterprise may double within the second quarter, whereas they’d beforehand anticipated 78% progress, and that AMD may add 8 proportion factors in general data-center market share.

Bernstein analyst Stacy Rasgon additionally talked about AMD in detailing Intel’s outcomes, which he referred to as “the worst we now have seen in our profession,” and made the prediction that AMD “is about to destroy them on server share given Intel’s efficiency this quarter.”

Extra on Rasgon: This Wall Street analyst turned his Twitter feed into ‘Sell-Side Stories with Stacy’

That kind of efficiency with data-center chips may assist to overpower anticipated softness in CPU gross sales for private computer systems. Experiences from Intel, Apple Inc.
AAPL,
+3.28%
and extra have confirmed fears that the pandemic boom in PC sales is over, after estimates that world PC shipments noticed their worst quarterly drop in at least a decade.

“Whereas PC CPU overshipment has begun to normalize, we now have but to see important channel correction to offset the stock construct which may counsel potential for additional draw back past easy market weak spot,” Rasgon wrote in an earlier word.

In yet one more potential success story for AMD, the quarter will possible produce a better gross margin than Intel, which reported a painful 44.8% for the second quarter. AMD reported a gross margin of 48% within the first quarter, and hiked its forecast for the yr to 54%.

What to anticipate

Earnings: AMD on common is predicted to publish adjusted earnings of $1.03 a share, up from 63 cents a share reported within the year-ago interval, in line with a FactSet survey of 30 analysts. Estimize, a software program platform that crowdsources estimates from hedge-fund executives, brokerages, buy-side analysts and others, requires earnings of $1.09 a share.

Income: AMD, on common, is predicted to publish document income of $6.53 billion, in line with 29 analysts surveyed by FactSet, up from $3.85 billion a yr in the past. That may be the primary time the corporate has ever cleared $6 billion in sales for a quarter, one quarter after breaking the $5 billion barrier for the first time. AMD executives guided for $6.3 billion to $6.7 billion. Estimize expects income of $6.54 billion.

This can even be the primary report that AMD reviews gross sales beneath its new classes: Information Middle, Consumer, Gaming, and Embedded.

Inventory motion: Whereas AMD earnings and gross sales have each topped Wall Road estimates previously eight quarterly reviews, shares solely closed larger the following day in half of these reviews: Last quarter, the quarter before that, this past summer and when the stock popped nearly 13% seven quarters in the past.

AMD shares are firmly in bear market territory, 43% off their closing excessive of $161.91 set on Nov. 29, and 6% decrease than their worth 12 months in the past. By comparability, the PHLX Semiconductor Index 
SOX,
+0.77%
is down about 10% from 12 months in the past, whereas the S&P 500 index 
SPX,
+1.42%
is down 7.5%, and the tech-heavy Nasdaq Composite Index 
COMP,
+1.88%
has fallen practically 18%.

Over the second quarter, AMD shares dropped 30%, because the SOX index declined 25%, the S&P 500 fell 16%, and Nasdaq dropped 22%.

What analysts are saying

Even earlier than seeing Intel’s painful numbers, analysts had been largely predicting sturdy good points for AMD. BMO Capital Markets analyst Ambrish Srivastava, who has an outperform ranking and a $115 worth goal on AMD, mentioned Intel having execution issues doesn’t even work into his view of AMD.

“We don’t want Intel to mis-execute for the thesis to work,” Srivastava mentioned. “Our sense is that with the a number of key architectural improvements the corporate has made, together with rolling out a lineup of merchandise that has enabled the corporate to not solely shut the hole however get forward in lots of instances, AMD’s credibility with prospects has continued to climb.”

Intel earnings response: ‘Such a disconnect’ between company’s optimism and reality

“Whereas AMD’s inventory has had a tough go YTD, we imagine near-term fundamentals are a lot stronger than their currently-larger peer (with way more sensible assumptions round PCs already baked in, no channel-stuffing habits, and with GPUs solely ~10% of gross sales),” Rasgon, who has an overperform ranking and a $135 worth goal on AMD, wrote in a word forward of Intel’s report. “And the long-term story retains getting higher with each Intel delay with their server place set to notably strengthen on the again of Intel’s pushouts.”

Certainly, Intel introduced one other delay to its Sapphire Rapids data-center chip as a result of produced chips weren’t assembly the corporate’s high quality requirements.

In a word titled “Earnings Season or Confession Season,” Susquehanna Monetary analyst Christopher Rolland mentioned he expects “extra subdued outlooks, notably these uncovered to the PC, Cellular and Shopper finish markets” this earnings season. Whereas AMD is doing effectively in data-center gross sales, Rolland, who has a constructive ranking and a $120 worth goal on AMD, factors out that AMD nonetheless will get 78% of its income from handsets and client gross sales.

And data-center isn’t precisely out of the woods, he mentioned. With PC gross sales declining and data-center gross sales in-line with expectations, the latter gross sales may additionally see softness. For data-center gross sales, “checks stay resilient,” Rolland mentioned, “however we fear about softer outlooks (ad-driven hyperscalers), risking 2H22/2023 capex spend.”

In-depth: Are chip stocks set up for a short squeeze, or just more declines? Wall Street doesn’t seem sure

KeyBanc analyst John Vihn, who has an obese scores and a $130 worth goal, lowered his estimates on AMD due to macro weak spot and a difficult quarter.

“We’re decreasing estimates for AMD given: 1) extra gaming GPU stock, which we imagine sits at six months within the channel; and a couple of) slowing PC demand, as we estimate 2022 PC NB shipments to say no by 14% vs. AMD’s outlook of -10%,” Vihn mentioned. “We stay obese, as we nonetheless see secular progress notably in cloud and a transparent line of sight to continued share good points over the following two years.”

Of the 38 analysts polled by FactSet, 22 have buy-grade scores, 15 have holds, and one analyst has a promote ranking on AMD, with a mean worth goal of $125.77.