<p>Advanced Micro Devices stocks (NASDAQ: AMD) are falling from their near-record highs after the company met expectations in its first-quarter earnings report. The company reported earnings per share for the first quarter, excluding certain items, of 18 cents on sales of $ 1.79 billion. Its results were exactly in line with analysts’ average estimate. The company’s revenues were slightly above average.
Source: Sundry Photography / Shutterstock.com
AMD‘s Q1 revenues and EPS increased significantly compared to the same period last year. During the first quarter of 2019, the company generated a profit of 1 cent of $ 1.27 billion. In its first quarter earnings report, AMD cited a 73% increase over its previous year in its revenue from its computer and graphics chip products as a reason for its strong results. Although analysts had expected revenue from these products to increase, the number also exceeded higher expectations.
But AMD‘s revenue from the company’s embedded and semi-adapted chips fell 21% YOY. These are the chips used in data centers and game consoles. Analysts, on average, had expected an increase in their revenues of 4% from that category.
The question now is, what can AMD do for an encore? The company got a big lift from the protected orders that forced millions of Americans to work from home. Now the US economy is slowly recovering. Will AMD be able to build on its latest momentum?
Advanced micro-devices have had a year to remember
After a share price has increased by over 100% in a single year, it is normal to be a little skeptical of the shares. I was guilty of it when I wrote about AMD shares in December. At the time, the stock closed at levels it had not reached since the dot-com boom. With optimism brewing over the recently signed Phase 1 trade agreement with China, I thought investors were buying AMD based on that news.
But AMD finally exceeded its dot-com high. And even a brief decline in equities when the Covid-19 pandemic first broke out, only the stock‘s momentum stopped. To be fair, both Intel (NASDAQ: INTC) and Nvidia (NASDAQ: NVDA) have also seen their shares increase by 15% and 60% respectively over the past 12 months. At one point, the Intel stock had risen by as much as 34% and the NVDA stock had jumped by as much as 75%. But AMD has easily outperformed both shares.
Ian Cooper, another columnist at InvestorPlace, pointed out some catalysts for AMD stocks. One is the growing demand for data center chips powered by Zoom Communications (NASDAQ: ZM). Another catalyst caused by the new coronavirus is the cloud computer. Businesses and individuals now work and play games at home, which should create an insatiable demand for the company’s products.
What’s next for AMD Stock?
Advanced Micro Devices provided guidance for the rest of 2020. The company warned that it may experience a slowdown in the coming quarters. It predicted that its sales would grow 20% to 30% this year, compared to its previous forecast of a 28% -30% profit.
And the company may well reach that goal. AMD expects the work from home trend to continue to increase its results. In addition, many of the leading gaming companies will introduce new consoles by the end of the year.
This is exciting news for AMD investors. But as InvestorPlace contributor Thomas Niel pointed out, the AMD stock is currently priced to perfection, with a future price-to-earnings ratio of 51.3.
That leaves it a bit shaky (but only slightly) to report lower-than-expected sales. I bet on AMD stocks before, and I can understand why analysts’ average 12-month price target is $ 46.32. I’m not betting that the stock will fall that far, but I can not see it going much higher right now. I think the AMD stock is a wait-and-see name right now.
At the time of writing, Chris Markoch had no position in any of the above securities.