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Jan. 28, 2020, 10:43 a.m. EST

AMD earnings: Intel’s data-center surge will be a tough act to follow

Wall Street consensus calls for a 39% rise in AMD server sales as it looks to continue charge into business that larger rival dominates

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By Wallace Witkowski, MarketWatch


Bloomberg News
Lisa Su, AMD president and CEO, presents Threadripper 3900X during a CES 2020 event.

Advanced Micro Devices Inc.’s sales of server chips may get heightened scrutiny following a surprise jump in data-center sales reported by larger rival Intel Corp.

AMD /zigman2/quotes/208144392/composite AMD +3.34%  shifted the power balance against bigger rival Intel Corp. /zigman2/quotes/203649727/composite INTC -0.56%  last year as it released its 7-nm “Rome” chips while Intel failed to bring its 10-nm chip to the market. In chip parlance, nanometers, or nm, refers to the size of the transistors that go on a computer chip, with the general rule being that smaller transistors are faster and more efficient in using power.

AMD’s forceful re-entry into the server business, which had been completely dominated by Intel for many years, was a big part of its turnaround. AMD’s Epyc line of data-center chips fall under the company’s enterprise embedded and semi-custom segment, and analysts expect sales in that segment to rise 39% to $603.8 million when AMD reports fourth-quarter earnings after the bell on Tuesday.

Don’t miss: Chip stocks soared as sales slumped in 2019 — what does that mean for 2020?

Expectations may have been changed, however, after Intel topped Wall Street estimates for data-center sales by about $800 million. AMD shares fell 2.6% Friday in the wake of Intel’s report, as Intel stock enjoyed its best day in two years and hit its highest prices since the dot-com bust.

/zigman2/quotes/208144392/composite AMD 45.48, +1.47, +3.34%

That was a rare drop for AMD — In addition to being the best performing stock on the S&P 500 index /zigman2/quotes/210599714/realtime SPX -0.82%  for the second year in a row, AMD shares recently topped their dot-com bubble highs to set new records, and promised an even bigger year in 2020 with the release of several new chips at CES. If it wants to keep that run going, AMD may have to produce a big beat on server sales to match its biggest rival.

What to expect

Earnings: Of the 33 analysts surveyed by FactSet, AMD on average is expected to post adjusted earnings of 31 cents a share, up from the 8 cents a share reported in the year-ago quarter. Estimize, a software platform that uses crowdsourcing from hedge-fund executives, brokerages, buy-side analysts and others, calls for earnings of 32 cents a share.

Revenue: Wall Street expects revenue of $2.11 billion from AMD, according to 32 analysts polled by FactSet. That’s down from the $2.15 billion forecast at the beginning of the quarter but up from the $1.42 billion reported in the year-ago period. AMD predicted revenue of $2.05 billion to $2.15 billion. Estimize expects revenue of $2.13 billion.

In AMD’s largest segment, computing and graphics chips, analysts expect a 52% rise in sales to $1.5 billion, according to FactSet.

Stock movement: AMD’s stock has surged 50% since its last earnings report in late October. In comparison, the S&P 500 index /zigman2/quotes/210599714/realtime SPX -0.82% has gained 7.2%, the tech-heavy Nasdaq Composite Index /zigman2/quotes/210598365/realtime COMP +0.01%   has grown 11%, and the PHLX Semiconductor Index /zigman2/quotes/210598361/realtime SOX +2.21% has increased 8.5% in that time.

What analysts are saying

Cowen analyst Matthew Ramsay, who has an outperform rating and a $60 price target, sees AMD taking away share from Intel for the long term, not just because of launch issues.

“Investors seem to be appreciating the sustainability of this competitive positioning and road map, which we do not see as just a few quarters of opportunistic share gains, and certainly not dependent on incremental competitive missteps from Intel,” Ramsay said.

Read: Intel enjoys big rebound in cloud, but the future is still hazy

Oppenheimer analyst Rick Schafer, who has a perform rating on the stock, sees continued momentum from AMD in the server space with its Epyc 2 chips.

“We estimate 7nm Epyc 2 share ended 2019 around 6-7%, a roughly 2x increase from EOY 2018, and see share hitting 10% midyear as Intel 10nm struggles linger,” Schafer said.

Susquehanna Financial Group analyst Christopher Rolland, who has a neutral rating on AMD, said in a Monday note that strong PC and data-center sales should help AMD meet high expectations in 2020.

First, Rolland said “CPU is exiting 2019 at the high point and if it follows typical seasonal patterns in 2020, it could contribute 15% top-line growth (before market share gains),” and secondly, “new gaming consoles with an ASP reset could contribute ~8% top-line growth,” and third, “we expect server to continue to gain share from mid-single digits in 2019 toward 10% in 2020 (contributing ~7% top-line growth).”

Analysts expect 2020 adjusted earnings of $1.13 a share and a revenue gain of nearly 30% to $8.62 billion from AMD, according to FactSet.

Opinion: Intel shows the way for conservative investors in this expensive stock market

Of the 38 analysts who cover AMD, 15 have buy or overweight ratings, 20 have hold ratings and three have sell or underweight ratings, with an average price target of $43.14.

/zigman2/quotes/208144392/composite
US : U.S.: Nasdaq
$ 45.48
+1.47 +3.34%
Volume: 100.67M
Feb. 28, 2020 4:00p
P/E Ratio
153.29
Dividend Yield
N/A
Market Cap
$53.20 billion
Rev. per Employee
$641,089
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/zigman2/quotes/203649727/composite
US : U.S.: Nasdaq
$ 55.52
-0.31 -0.56%
Volume: 60.73M
Feb. 28, 2020 4:00p
P/E Ratio
11.76
Dividend Yield
2.38%
Market Cap
$237.46 billion
Rev. per Employee
$659,665
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/zigman2/quotes/210599714/realtime
US : S&P US
2,954.22
-24.54 -0.82%
Volume: 5.14B
Feb. 28, 2020 5:06p
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/zigman2/quotes/210599714/realtime
US : S&P US
2,954.22
-24.54 -0.82%
Volume: 5.14B
Feb. 28, 2020 5:06p
loading...
/zigman2/quotes/210598365/realtime
US : U.S.: Nasdaq
8,567.37
+0.89 +0.01%
Volume: 4.49M
Feb. 28, 2020 5:16p
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/zigman2/quotes/210598361/realtime
US : Nasdaq
1,705.54
+36.89 +2.21%
Volume: 383,941
Feb. 28, 2020 5:16p
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Wallace Witkowski is a MarketWatch news editor in San Francisco. Follow him on Twitter @wmwitkowski.

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