Cramer's Investing Club: AMD posts brilliant fourth quarter, forecasts even more growth

Published Tue, Feb 1 20227:08 PM ESTUpdated Tue, Feb 1 20227:36 PM EST

Advanced Micro Devices (AMD) reported a fantastic fourth quarter earnings result after the closing bell Tuesday. Revenues increased 49% year-over-year (the sixth straight quarter of +45% YoY growth) and 12% quarter-over-quarter to $4.826 billion, beating the consensus analyst estimate of $4.523 billion, according to FactSet. In addition to the impressive top-line growth, fourth-quarter adjusted gross margins increased 560 basis points YoY and 190 basis points QoQ to about 50%, which is higher than the 49.4% analysts were looking for. This leads us to the bottom line. AMD increased adjusted earnings by share by 77% YoY and 26% QoQ to $0.92, well above analyst expectations of $0.76. Shares of AMD popped 10% in after-hours trading. Bottom line AMD is firing on all cylinders. The company delivered an impressive quarter that was driven by market share gains and continued growth in the data center, which now represents a mid-20 percentage of the company's overall revenue. Plus, management is executing on an extremely high level as they are successfully navigating a tight supply environment. With the closing of the Xilinx acquisition on the horizon, AMD remains one of our favorite names in the semiconductor industry. Breaking down the results In the computing and graphics segment, revenue increased 32% YoY and 8% QoQ to $2.584 billion, topping estimates of $2.418 billion. Revenue growth was driven by Ryzen and Radeon processor sales. AMD delivered record client computing revenue, which grew by a double-digit percentage from a year ago, thanks to record notebook sales and higher average selling prices. The company saw strong demand for premium AMD notebooks and higher-end desktop CPUs in the quarter, with Ryzen 5000 processor unit shipments up by a double-digit percentage sequentially. The key thing to note here is that AMD believes it gained client processor revenue share for the seventh straight quarter. AMD's ability to gain share is notable and it provides us comfort in the company's ability to grow in 2022 despite a flattish overall view of the personal computer market. In graphics, revenue more than doubled YoY for the third straight quarter, with data center graphics revenue also doubling thanks largely to high-performance computing wins for AMD's latest instinct MI200 accelerators. In the enterprise, embedded and semi-custom segment, revenue increased 75% YoY and 17% QoQ to $2.242 billion, topping estimates of $2.099 billion. Revenue growth was driven by higher sales for EPYC processors and semi-customer products. Remember, AMD's semi-custom business sells into the popular gaming PlayStation 5 and Xbox Series X/S next-generation consoles which are currently going through a cycle that is outpacing all prior generations. The demand has been that strong. In the server business, revenues once again doubled YoY and increased by a double-digit percentage sequentially driven by demand across both cloud and enterprise customers. Cloud revenues more than doubled YoY as the largest providers expanded internal deployments and more than 130 new AMD-powered instances launched across some of the biggest players in the space. Think Amazon Web Services, Alibaba, Azure, and Google. In enterprise, revenues double YoY thanks to the ongoing ramp of more than 100 3 rd generation EPYC platforms. Guidance Turning to the company's outlook, management provided an upbeat view of what to expect this year. For the full year 2022, AMD expects revenues to grow 31% YoY to approximately $21.5 billion. This outlook is solidly above expectations of about $19.293 billion. AMD also forecasts adjusted gross margins to be approximately 51%, up from 48% in 2021 and stronger than expectations of about 50%. For the first quarter, AMD expects revenues to increase approximately 45% YoY and 4% QoQ to $5.0 billion, plus or minus $100 million, with YoY growth across all businesses and sequential growth driven by higher server and client processor revenue. This view is well above analyst forecasts of about $4.3 billion. The call for sequential growth is notable because the first quarter is seasonally a sequential down quarter, but AMD is experiencing so much demand right now. On margins, AMD expects adjusted gross margins for the first quarter to be approximately 50.5%, which is much stronger than analyst forecasts of about 49%. The company continues to see its margins expand year after year as its data center business becomes a larger part of the company and as the mix within the Client and Graphics business improves. Importantly, the outlook provided by AMD tonight does not include the acquisition of Xilinx, meaning that numbers "or estimates" will need to go even higher after the deal is closed. Xilinx update AMD is on the home stretch in closing its acquisition of Xilinx. An important milestone was reached on January 27 th , when China's State Administration for Market Regulation approved the transaction. The last remaining regulatory hurdle is the FTC approving AMD's HSR refiling. Management continues to expect the deal to close in the first quarter of 2022. The deal has taken a long time—and much longer than what we anticipated—but we continue to like this deal for its diversification benefits. Capital allocation The company first announced a $4 billion share repurchase program in 2021, and management has put that cash to good work ever since. AMD repurchased $756 million of stock in the fourth quarter, but get this: AMD said on the call tonight that they have already bought back $1 billion of stock to date in the first quarter. This is very noteworthy and is a sign that management views the recent volatility in the stock as an opportunity. (Jim Cramer's Charitable Trust is long AMD. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust's portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . 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Advanced Micro Devices CEO Lisa Su.

Scott Mlyn | CNBC

Advanced Micro Devices (AMD) reported a fantastic fourth quarter earnings result after the closing bell Tuesday.