August 11, 2020 AMD’s Clear Path to the End Zone

Wow, so much to go over! Where to start?

First, the share price. In a span of two weeks, AMD went from the 50’s to the 80’s! On July 22, AMD went from 57 to 61 for no apparent reason. On July 24, day after Intel’s admission of their 7 nm delay, AMD exploded up from 60 to 69, with a corresponding drop by Intel from 60 to 50. Then on July 29, day after AMD’s Q2 ER, AMD went up from 67 to 76. Then on August 4, AMD went from 77 to 85, becoming a 100B company.

Now there is a pull back, with AMD at 79 to 80 today, when Russia announced a COVID vaccine. This helped drive stocks up in the beaten down sectors, with money flowing out of the tech sector, which had seen tremendous growth lately. This is all expected and healthy.

The AMD Q2 ER was spectacular! Revenue was $1.93B, much better than the guided $1.85B, despite the COVID headwind. This is also their best Q2 revenue ever.

More important is the guidance. AMD is projecting $2.55B for Q3, and 32% increase for 2020 revenue over 2019. Doing simple math, that means 2020 revenue is projected to be $8.88B, thus Q4 is expected to be around $2.61B. Of course, there is always the +/- range of $100M here and there. All these numbers will be AMD’s best Q3 and Q4 ever as well.

Now we know Lisa Su likes to be conservative. Given the fact that all other tech companies had held back whole year guidance, it would be amazing for AMD to even meet their original 30% increase, given back in January. Thus if she feels comfortable to give out the 32% number, it means this 32% will DEFINITELY be met. Otherwise, she would be wise to just give 30% or even 31%. The market will be happy already. Therefore 2020 revenue may even hit $9B. We will know by late October.

Positive drivers for the rest of 2020 are:

Milan, or 3rd gen Epyc, rumored to be really amazing, and able to take on 100% of data center work loads.

Zen 3 CPU, rumored to launch in October 2020, just in time for the holiday season.

MI 100 and MI 200. Data center GPUs.

Big Navi, the high end gaming GPU. Here leaks are few yet tantalizing. This will compete with Nvidia’s Ampere, launching soon.

Zen 2 mobile APUs, or Renoir, are out, and doing extremely well in the notebook segment. Apparently AMD had to allocate chips preferentially to the major OEMs, with shipments to the smaller OEMs a month late. This is all good because it shows excellent demand. Renoir will benefit from WFH, online school, back to school and holiday seasons.

PS5 is rumored to have increased orders from Sony. Sony is expecting very high number of units sold for this generation, over a shorter life span.

XBox is looking good. XCloud, launching on Sept 15, 2020, is perceived in very good light by the gaming community. TheStreet did an article on the Microsoft-AMD cloud gaming service, here.

Meanwhile, analysts have all upped their price targets.

Hans Mosesmann (Rosenblatt) has a PT of 120. He is expecting AMD to earn $2.50 in 2021!

Mark Lipacis (Jefferies) has a PT of 95.

Most PT are now in the 70-80 range.

Certainly macro factors will matter, such as the US election, state of economies, COVID, and US-China issues (TikTok, Huawei etc).

As for Intel, it is undergoing more reorganization. Rumor was that its Chief Engineering Officer Murthy Renduchintala had won an internal power struggle with Jim Keller who then left Intel abruptly in June for non-specified family emergency. It was then thought that Murthy would compete to be the next Intel CEO. However, Bob Swan then fired Murthy on July 27. This reorg didn’t really improve anything, now that all tech chiefs will be directly reporting to Swan, who has no tech expertise.

Nonetheless, AMD now has superior products vs. Intel in all segments for the foreseeable future (through 2023) and will be competitive to Nvidia as well. So even with headwinds, AMD can and will take market shares and grow. That is why it IS different THIS time.

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s