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Market Insights

Stock of the week: AMD

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Sifting through the market wreckage, there’s a lot of damage to some high growth names. Rising costs meeting low profitability at the same time as interest rates are increasing has been a potent cocktail over the past six months.

Still, there are a few companies whose share price has remained relatively stable compared to others. AMD is one such company. Let’s take a look at the chart:

Advanced Micro

Since falling 48% from the November highs, AMD has bounced. After their recent earnings report, the stock gapped higher through the 20 day moving average and into key resistance just below $100. The next day, price fell back to the 20 day moving average, retested it from above and found buying interest.

Whether any upside momentum can be sustained in the current macro environment remains to be seen, although it’s notable that AMD is outperforming stocks like Shopify & Peloton that are down 80 or 90% (respectively) from last year's highs.

Record Revenues

AMD’s earnings report confirmed record quarterly revenues of $5.8 billion (+71% YoY), and a glance at this chart from the presentation shows what a significant quarter it was for the company.

Revenue TREND

Perhaps more importantly, AMD forecasts even stronger growth going forward as an increase in data centres and cloud computing is expected to boost demand for their chips.

Research firm Canalys said that worldwide cloud infrastructure services spending increased 34% to US$55.9 billion in Q1 2022, as organisations prioritised digitalisation strategies.

AMD Chair & CEO Dr Lisa Su’s accompanying statement summarised the firm’s position succinctly:

  • “The first quarter marked a significant inflection point in our journey to scale and transform AMD as we delivered record revenue and closed our strategic acquisition of Xilinx,”
  • “Each of our businesses grew by a significant double digit percentage year-over-year, led by EPYC server processor revenue more than doubling for the third straight quarter.”
  • Demand remains strong for our leadership products, with our increased full-year guidance reflecting higher AMD organic growth and the addition of the growing Xilinx business.”

The Xilinx acquisition adds another dimension to AMD and is seen as a route into new markets such as automotive tech and 5G mobile networks. AMD also expects to integrate Xilinx’s AI optimised circuitry into their CPU products for increased performance.

Although CEO Su does anticipate a fall in the total PC market this year, their strategy is clear:

"Our focus remains on the premium, gaming and commercial portions of the market where we see strong growth opportunities and expect to continue gaining overall client revenue share,"

AMD said it expects revenue of about $6.5 billion for the current (Q2) quarter.

AMD will face tough questions in coming quarters though… Just how durable is the demand for data centres and cloud computing? Is the pace of growth sustainable?

And perhaps most importantly, will businesses continue to invest at the same pace if the global economy slows as the IMF & many economists are forecasting?

Not investment advice. Past performance does not guarantee or predict future performance.

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