It's quite possible that when the dust settles, AMD (AMD) will end up topping the full-year revenue guidance range that it just issued.
The problem is that -- although the midpoint of AMD's guidance range is actually a little above the pre-earnings analyst consensus -- many investors had dialed their expectations meaningfully higher as they bid AMD's stock above $50.
AMD is down about 7% today after slightly beating Q4 revenue and EPS estimates, issuing light Q1 revenue guidance and guiding for 28% to 30% full-year revenue growth, which compares with a consensus for revenue to grow 28% to $8.62 billion. However, the stock is still up 145% over the last 12 months, and 43% from where it traded prior to its Oct. 29 Q3 report.
It's worth noting that both AMD's full-year guidance and (especially) its Q1 guidance would be stronger if its semi-custom (game console) processor sales weren't falling off a cliff ahead of late-2020 launches of next-gen consoles featuring powerful AMD processors. On the earnings call, CEO Lisa Su said that AMD expects "negligible" semi-custom revenue in Q1 -- a comment that suggests Microsoft (MSFT) and Sony (SNE) respectively trying to clear their Xbox One and PlayStation 4 processor inventory before their current consoles become obsolete.
Nonetheless, with this year's console launches set to provide a big lift to both AMD's semi-custom unit sales and average selling prices (ASPs), Su still forecast AMD's full-year semi-custom revenue will grow at a strong double-digit clip. She also forecast -- following strong Q4 growth for both businesses -- that AMD's PC and server CPU sales will see strong double-digit growth, and that server CPUs (benefiting from the mid-2019 launch of AMD's highly competitive second-gen Epyc CPU line) will be AMD's fastest-growing business this year.
AMD investors could also take heart in some of the comments Su and CFO Devinder Kumar made about planned 2020 product launches. Specifically:
- Kumar indicated that by the time AMD is ramping next-gen console processor shipments in Q3, the company will also be ramping its next-gen desktop and server CPUs. These CPUs are expected to deliver meaningful performance gains with the help of a revamped CPU core microarchitecture (known as Zen 3) and an improved 7-nanometer (7nm) Taiwan Semiconductor (TSM) manufacturing process (known as N7+). And they likely have something to do with Intel's (INTC) recent comments about expecting "an increasingly competitive environment" as 2020 progresses.
- Su, who recently confirmed that AMD plans to launch a high-end gaming GPU later this year, said that AMD will launch gaming GPUs this year that rely on a next-gen version of the gaming-optimized RDNA architecture that underpins its Navi GPU platform, which began rolling out in July. The comments come amid ongoing reports that Nvidia (NVDA) plans to launch gaming and server GPUs based on its next-gen Ampere architecture later this year.
- Su also indicated new server GPUs will launch in the second half of 2020. Given how quick AMD was to use TSMC's 7nm process node to produce a server GPU in 2018, its 2020 server GPUs could conceivably use TSMC's next-gen 5nm node, which is due to enter volume production in the first half of the year.
But while AMD's numbers and commentary would probably have been enough to help its stock rally if it was still trading at October levels, more was needed with AMD going into its Q4 report worth around $55 billion and trading for more than 32 times its 2021 EPS consensus.
It's definitely possible that both AMD's 2021 and 2020 consensus estimates, as well as the company's 2020 revenue guidance, prove to be too conservative. AMD's management is doubtlessly aware that there are a lot of variables in play for 2020. Big ones include the pace of AMD's cloud and enterprise server CPU share gains; the consumer reception for notebooks featuring AMD's recently-launched, third-gen, Ryzen Mobile processors; how AMD's GPU market share trends; and initial demand for next-gen consoles. And all these unknowns could be leading management to err on the side of caution when it comes to full-year guidance.
The issue from an investor's standpoint, however, is one of risk/reward.
If AMD blows past its current 2020 guidance and also makes it clear that current 2021 estimates are too low, its stock could keep rallying even from current levels. But as Wednesday's decline drives home, the revenue and EPS numbers needed for AMD to rally from current levels are a lot different than the ones that were needed for it to rally a few months ago.