A month has gone by since the last earnings report for Advanced Micro Devices (AMD). Shares have lost about 9.2% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Advanced Micro due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
AMD Q4 Earnings Beat Estimates, Revenues Up Y/Y
Advanced Micro Devices reported fourth-quarter 2024 non-GAAP earnings of $1.09 per share, beating the Zacks Consensus Estimate by 1.10%. The figure surged 31.4% year over year.
Revenues of $7.658 billion beat the Zacks Consensus Estimate by 1.61% and increased 24.2% year over year, as well as 12% sequentially.
The top-line growth benefited from robust Data Center and Client revenues that were partially offset by sluggishness in the Gaming and Embedded segments.
AMD Q4 Top Line Rides on Data Center Growth
Data Center revenues surged 69.1% year over year to $3.859 billion and accounted for 50.4% of total revenues. Sequentially, revenues increased 8.7%.
AMD’s top line benefited from strong Instinct GPU shipments and robust EPYC CPU sales.
Exiting fourth-quarter 2024, Microsoft, Google, Amazon Web Services, Tencent and Alibaba launched more than 100 general purpose and AI instances.
Microsoft launched new Azure instances powered by a custom-built EPYC processor with high bandwidth memory that delivers superior performance.
EPYC sales grew double-digit percentage on a year-over-year basis, driven by high-volume deployments with Akamai, Hitachi, LG, ServiceNow, Verizon, Visa and others.
In the Data Center AI business, MI300X deployment increased with cloud partners, including Meta Platforms, Microsoft, IBM, Digital Ocean and Dell Technologies, among others.
Meta Platforms used MI300X to power its Llama 405B frontier model on meta.ai. It added instinct GPUs to its OCP-compliant Grand Teton platform, designed for deep learning recommendation models and large-scale AI inferencing workloads.
Microsoft is using MI300X to power multiple GPT 4-based Copilot services. IBM announced plans to enable MI300X on its Watson X AI and data platform for training and deploying enterprise-ready generative AI applications.
Dell Technologies started offering MI300X as part of its AI factory solution suite. DELL is providing multiple ready-to-deploy containers through its Dell Enterprise Hub on Hugging Face.
AMD’s Client Revenues Ride on Ryzen and Mobile Processors
The Client segment’s revenues soared 58% year over year to $2.313 billion and accounted for 30.2% of total revenues. Sequentially, revenues increased 23%.
Higher demand for both Ryzen desktop and mobile processors benefited the Client revenue growth in the reported quarter.
AMD inked a collaboration with Dell Technologies, under which the latter will offer a full portfolio of commercial PCs powered by Ryzen Pro processors.
AMD Suffers From Weak Gaming & Embedded Revenues
The Gaming segment revenues fell 58.8% year over year to $563 million and accounted for 7.4% of total revenues. Sequentially, revenues increased 21.9%.
The decline in semi-custom and Gaming graphics sales negatively impacted the Gaming segment’s sales.
The Embedded segment revenues were $923 million, down 12.7% year over year and 0.4% sequentially. The segment accounted for 12.1% of total revenues.
Weakness in the industrial and communications markets offset growth in aerospace and defense as well as test and emulation end markets.
AMD’s Margins Expand Y/Y in Q4
Non-GAAP gross margin expanded 330 basis points (bps) on a year-over-year basis to 54.1%, driven by growth in the Data Center and Client segments revenues.
Non-GAAP operating expenses increased 23% year over year to $2.125 billion.
Non-GAAP operating margin expanded 360 bps on a year-over-year basis to 26.5% in the fourth quarter, driven by higher revenues and gross margin.
AMD’s Balance Sheet & Cash Flow Remains Strong
As of Dec. 28, 2024, AMD had cash, cash equivalents and short-term investments of $5.132 billion compared with $4.544 billion as of Sept. 28, 2024.
As of Dec. 28, 2024, total debt was $1.72 billion, unchanged from the figure reported as of Sept. 28, 2024.
Operating cash flow was reported at $1.299 billion compared with $628 million in the third quarter of 2024.
Free cash flow was $1.091 billion in the fourth quarter of 2024 compared with $496 million in the third quarter of 2024.
In the fourth quarter of 2024, AMD repurchased 1.8 million shares and returned $256 million to shareholders. The company has $4.7 billion remaining under its current authorization.
AMD’s Q1 Guidance Unimpressive
AMD expects first-quarter 2025 revenues to be $7.1 billion (+/-$300 million). At the mid-point of the revenue range, this represents year-over-year growth of approximately 30% and a sequential decline of approximately 7%.
For the first quarter, AMD expects non-GAAP gross margin to be roughly 54%. Non-GAAP operating expenses are expected to be nearly $2.1 billion.
For 2025, AMD expects a strong demand environment to boost growth in the Data Center and Client businesses and a modest increase in the Gaming and Embedded businesses. The company believes a strong demand environment will help to deliver double-digit percentage revenue and earnings growth year over year.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates revision.
VGM Scores
At this time, Advanced Micro has an average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Advanced Micro has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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