Chipmaker AMD posts amazing quarter, gains share despite supply chain challenges

Published Tue, May 3 20227:49 PM EDT

Advanced Micro Devices (AMD) reported fantastic first-quarter earnings after the closing bell Tuesday. Adjusted earnings per share skyrocketed 117% year over year and 23% over the previous quarter to $1.13, well above analyst expectations of $0.92 per share. Providing for that bottom line beat was superb margin performance as first-quarter adjusted gross margins expanded an incredible 660 basis points versus the year ago period, and 240 basis points sequentially to about 53%, nicely ahead of the 50.5% expected by analysts. Revenue surged 71% year over year and 22% over last quarter to $5.89 billion, breezing past the $5 billion consensus on FactSet. We have also seen a $5.5 billion estimate, but this likely includes a contribution from the Xilinx acquisition. But even excluding the six-week contribution from Xilinx to the top line, revenue hit $5.3 billion. No matter how you slice it, AMD beat estimates. Shares of AMD were up as much as 8% in after-hours trading. Bottom line AMD has become a go-to supplier of cutting edge chips to companies looking to improve their tech infrastructure — something these customers must to do stay competitive. With the acquisition of semiconductor device maker Xilinx now complete, management is identifying additional synergy opportunities from their broader portfolio of products. Another positive: Consumer demand for next-generation consoles continues to drive strong semi-custom chip demand. And while the personal computer market has softened following multiple quarters of near record unit shipments, AMD's outsized exposure to the premium gaming and commercial end markets means more growth and further share gains ahead — despite ongoing supply challenges. Breaking down the results In the computing and graphics segment, revenue increased 33% year over year and 8% over last quarter to a record $2.8 billion, topping estimates of $2.65 billion. The annual revenue growth was driven by both Ryzen and Radeon processor sales, while the sequential growth comes largely on the back of higher Ryzen processor sales. On the call, management said AMD gained client processor revenue share for the eighth straight quarter. On the commercial side, management said the company is "well-positioned to accelerate growth" on notebooks with launches on track for this year. Importantly, management acknowledged the PC market softer, but reminded investors the focus is on the premium gaming and commercial segments of the market, where they see strong growth opportunities. Graphics revenue was up a "strong double-digit percentage" thanks to record desktop graphics sales and a near doubling of GPU sales versus the year ago period. In the enterprise, embedded and semi-custom segment, revenue increased 88% year over year and 13% quarter over quarter to a record $2.5 billion, topping estimates of $2.37 billion. Revenue growth was driven by record server, semi-custom and embedded processor sales. On the call, management noted that semi-custom sales "grew by a significant double-digit percentage" versus the year ago period thanks to strong demand for Sony's PlayStation 5 and Microsoft's Xbox consoles as well as Valve's new Steam Deck. Moreover, management commented that this generation of gaming consoles is outpacing all prior generations and that as a result, they expect 2022 to be a record year for the semi-custom business. Embedded business revenue more than doubled, with automotive leading the way. Servers posted another record quarter with revenue more than doubling versus the year ago period on the back of growing demand for EPIC processors from cloud enterprise, and high performance computing customers. Notably, with this double, server processor revenue has now doubled, on an annual basis, in 8 of the last 10 quarters. Cloud revenues also more than doubled annually (a dynamic we saw on the last release as well) as the largest providers ( Alibaba (BABA), Amazon (AMZN), Baidu Cloud, Microsoft Azure and Google amongst others) added 70 new AMD-powered instances. That brings total AMD-based cloud instances available from the largest hyperscalers to over 460, with plans to launch more in coming quarters. Note, an "instance" essentially refers to a virtual machine running workloads in the cloud. Cloud computing customers can select the type of instance they want to use based on the work they are doing. More AMD instances essentially means more demand from cloud computing customers to work on virtual machines that leverage AMD's chips. Enterprise revenue more than double annually (again, we saw revenue double on annual basis in the fourth quarter as well) thanks strong growth in key verticals including IT infrastructure, financial services and database applications. Guidance Management raised expectations for the full year, now targeting 2022 sales of $26.3 billion — a roughly 60% annual increase driven by addition of Xilinx and higher server and semi-custom revenue. As was the case with the reported sales results, expectations are a bit unclear given that some analysts have not yet updated their models for Xilinx. Whether you look at the $21.5 billion FactSet estimate or use the roughly $25 billion figure we found in a model explicitly factoring in Xilinx, management's guidance was positive. AMD also forecasts adjusted gross margins of roughly 54% and increase from the roughly 51% margin previously expected and stronger than estimate of about 51% on FactSet. For the second quarter, AMD expects revenues to jump roughly 69% year over and 10% over the first quarter to $6.5 billion, plus or minus $200 million. The year-over-year growth will be driven by the addition of Xilinx as well as higher server, semi-custom and client sales. Again, expectations are a bit unclear. FactSet consensus stood at $5.17 billion coming into the print, while we have also seen roughly $6.4 billion in a Xilinx-inclusive model. But either way, another beat here with only the magnitude of the beat in question. On margins, AMD expects adjusted gross margins for the second quarter to be about 54%, which is significantly above analyst forecasts of about 50.5% on FactSet. Xilinx update Management highlighted that on a pro forma basis for the full quarter that Xilinx delivered its fourth straight quarter of greater than 20% year-over-year revenue growth and the second straight quarter of greater than $1 billion of revenue. The integration work continues with management noting "tremendous excitement" from customers and adding that in their view, AMD now had "the best portfolio of high-performance and adaptive computing engines in the industry." Importantly the team also said they have "also identified significant additional revenue synergy opportunities" with some of AMD's largest customers and can now address more of their computing needs thanks to the expanded product portfolio with the acquisition. Capital allocation During the quarter, AMD announced an $8 billion share repurchase authorization, in addition to the $4 billion buyback authorized last year. During the quarter, management returned $1.9 billion to shareholders through buybacks; management said $8.3 billion remained authorized as of the end of the quarter. (Jim Cramer's Charitable Trust is long AMZN, GOOGL, AMD, MSFT. 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. 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Lisa Su, president and CEO of AMD, during an interview with Mad Money, broadcasting from CNBC's San Francisco bureau on November 21, 2019.

Jacob Jimenez | CNBC

Advanced Micro Devices (AMD) reported fantastic first-quarter earnings after the closing bell Tuesday.

Adjusted earnings per share skyrocketed 117% year over year and 23% over the previous quarter to $1.13, well above analyst expectations of $0.92 per share.