AMD is up more than 170% over the past 52 weeks. Right after last night's earnings report, the stock fell 6-12%, which set the focus for the morning's trading.
The Earnings, Beat by Beat
Against expectations, this was an impressive report. Earnings per share came in at $1.66, above the estimate. Revenue grew about 50% year-over-year and beat estimates. Data center revenue more than doubled, up over 107% year-over-year, and also beat. Adjusted gross margins were basically in line at 56%. Adjusted operating income, just under $3.1 billion, was better than expected.
For the current quarter, guidance was $13 billion, plus or minus $300 million, so a range of $12.7 to $13.3 billion. The street's midpoint estimate was closer to $12.5 billion. That guidance is objectively better than expected, but only by about 4%. Adjusted margins are expected to hold steady around 56%, which you could call slightly below expectation but essentially in line.
Why a Beat Still Got Sold
With these AI winners, it is genuinely hard to know what will be enough and what won't. Read the headlines and they call the outlook "underwhelming," which really just means things are fine, they're good, they're just not enough.
The market may have gone into this report a little too bullish. The stock's run this year has been extraordinary, and perhaps nothing would have satisfied it. The company beat its outlook by about $500 million. When Nvidia was in its heyday, it was beating its outlook by billions. So the outlook is better than expected, yet that isn't really what investors were looking for. The expectation was a beat and a significant raise, not just clearing the bar but setting new heights.
The bull case: strong AI demand and continued data center growth. The bear case: guidance and near-term AI growth didn't clear an extremely high bar, even though the numbers were better than expected. This is a strong company with strong fundamentals for what it should be worth. Today looks like a family fight among investors.
On the sell-side, most analysts kept their buy ratings and raised price targets across the board. Wells Fargo moved its target to $700. Ralph Bulk at Futurum went to $800, reiterating a buy.
An Example Trade on AMD
The stock is getting hit hard, though it rallied off the bottom. It will likely sell off again as the day goes on, but probably won't reach the earlier lows seen in the session. Those earlier lows are an attractive level.
The trade is selling a put spread: the August 21st expiration, the 460/440 put spread, going out a few weeks. The goal is to collect about $7 for it. It's currently trading between $5.50 and $6, so the stock would need to come down more to fill at $7. If that fills, the break-even on August 21st is $453. That is a strong spot in AMD and a chance to collect a nice amount of premium.
The Broader Market
The market set another record. Earnings have been really good across the board. The broad rally is a surprise given the talk of multiple rate hikes and the unresolved situation with the Strait of Hormuz and Iran. Concerns about capex (the money companies spend on equipment and buildings) look a little overstated. Still, some caution is warranted here: the market has run too far too fast.
