It's that time. One of Sarge's favorite stocks and perhaps Sarge's very favorite CEO, all wrapped up in one.
On Tuesday evening, at the end of what had been a strong day on Wall Street and one day ahead of "Fed Day", Advanced Micro Devices (AMD) released that firm's fourth quarter financial results.
For the three month period ended December 31st, AMD posted adjusted EPS of $0.69 (GAAP EPS: $0.01) on revenue of $5.599B. The numbers for both adjusted profitability as well as revenue generation both beat Wall Street, while those revenues were also good enough for year over year growth of 15.9%. The vast majority of the adjustment made ($0.65 per share's worth) came from the amortization of acquired intangible assets. (Think Xilinx) This was partially offset by a $154M ($0.20 per share) tax benefit.
For those reasons, I will be sticking primarily with the adjusted data. Adjusted gross profit increased 18% to $2.859B, as adjusted gross margin improved from 50% to 51%. Adjusted operating expenses increased 45% to $1.602B, and that dropped adjusted operating income by 5% to $1.262B as adjusted operating margin decreased from 27% to 23%. This left net income essentially flat (down very small) as adjusted EPS dropped 25% from the year ago comp of $0.92.
Segment Performance
- Data Center generated revenue of $1.655B, which was up 42.3% over last year, but fell short of estimates. This drove operating income of $444M, which was up 20.3%.
- Gaming generated revenue of $1.644B, which was down 6.7% from last year, but beat estimates. This drove operating income of $266M, which was down 34.6%.
- Embedded generated revenue of $1.397B, which was up from just $71M for the same period last year (Xilinx). This beat estimates and drove operating income of $699M, which was up from $18M.
- Client generated revenue of $903M, which was down 50.6% from last year, while also falling short of estimates. This drove operating income/loss of $-152M, which was down from $+530M a year ago.
Guidance
This was not exactly what Wall Street was looking for, but was a whole lot better than some feared. The firm sees current quarter revenue generation of about $5.3B, plus or minus $300M. Wall Street view had been for nearly $5.5B. This would also be a drop of roughly 10% year over year versus the 7% drop that Wall Street had in mind. The firm sees continued weakness in PCs (Client) and gaming that would be partially offset by growth in the Data Center and in embedded. AMD is looking for an adjusted gross margin of roughly 50% for the quarter. The firm did not provide specific full-year guidance.
Balance Sheet
AMD ended the quarter with a net cash position of $5.855B, and inventories of $3.771B. Both of these numbers are up significantly from a year ago, as current assets increased 75% to $15.019B. Current liabilities add up to $6.369B (+50%) bringing the firm current ratio to an extremely healthy 2.36. Even sans the still bloated inventories, the firm's quick ratio stands at a still excellent 1.77.
Total assets amount to $67.58B. This does include "goodwill" of $24.177B and acquisition-related intangibles of $24.188B. Combined, these two items make up 71% of total assets, which makes me mildly uncomfortable. Total assets less equity comes to just $12.83B, which makes me feel much more comfortable. Long-term debt of $2.467B, which is something that the firm could handle out of pocket if need be, is included in this number. AMD's balance sheet is in fine shape.
Wall Street
A number of sell-side analysts adjusted their views of AMD in the days leading up to last night's release. I did not see anyone edit their view overnight. Over the past three months, according to TipRanks, 23 analysts have written something about AMD. The average target price of those 23 is $91.82, with a high of $200 (Hans Mosesmann of Rosenblatt, five stars) three days ago and a low of $68 (Ross Seymore of Deutsche Bank, five stars) three months ago.
My Thoughts
Lisa Su is tough enough to eat Intel (INTC) CEO Pat Gelsinger's lunch on one side and bright enough to compete head-to-head with Nvidia (NVDA) CEO Jensen Huang for the high-end market. We know that inventories will continue to pressure margin while the economy itself will threaten demand.
Readers will see that AMD has bottomed and broken out of its downtrend in early 2023. The shares have retaken both their 21 day EMA (exponential moving average) and 50 day SMA (simple moving average) in doing so, as Relative Strength and the daily MACD (Moving Average Convergence Divergence) have both improved, but not dramatically so.
Currently, I am a little overweight this name, as buying in October and in early 2023 coupled with the recent move have made AMD my most heavily weighted position on my most active portfolio.
For that reason, I will probably give my position a haircut this morning. (I have to, I am up 32% and there is a lot of headline risk threatening the broader market this morning.) Do not confuse prudent risk management with my not continuing to like this stock and its leader.
I will remain long AMD and AMD will remain a top five holding of mine. I see support down to the 50 day line at $70. I see the 200 day line $79, as my pivot. My target price is currently $94.
