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AMD Gears Up for Q3 Earnings: What's in Store for This Stock?

Zacks Equity Research

Advanced Micro Devices Inc AMD is set to report third-quarter 2019 results on Oct 29.

Notably, the company surpassed the Zacks Consensus Estimate in one of the trailing four quarters, the average beat being 2.2%.

Which Way Are Q3 Estimates Treading?

For third-quarter 2019, AMD expects revenues to be roughly $1.8 billion (+/-$50 million), up almost 18% sequentially and 9% year over year.

The Zacks Consensus Estimate for third-quarter earnings is pegged at 18 cents per share, unchanged over the last 30 days. The figure indicates an improvement of 38.5% from the year-ago quarter. The Zacks Consensus Estimate for revenues stands at $1.8 billion, suggesting growth of 9.1% from the year-ago reported figure.

Notably, AMD’s stock has returned 79.9% in the past one year, outperforming the industry’s rally of 33.3%.

Q2 at a Glance

AMD had reported second-quarter 2019 non-GAAP earnings of 8 cents per share, which matched the Zacks Consensus Estimate. However, the figure declined 42.9% year over year.

Revenues of $1.531 billion beat the Zacks Consensus Estimate of $1.524 billion. However, the top line declined 13% year over year.

Why a Likely Positive Surprise?

Our proven model predicts an earnings beat for AMD this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat.

Earnings ESP: AMD has an Earnings ESP of +6.54% as the Most Accurate Estimate of 19 cents is pegged higher than the Zacks Consensus Estimate of 18 cents. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: AMD currently carries a Zacks Rank #2.

Factors at Play

AMD has been making every effort to strengthen its GPU portfolio with new capabilities in a bid to provide gamers with superior graphic performance and high-quality visual experiences. These initiatives are likely to reflect on the third-quarter performance.

The company stated that Ryzen and EPYC processors and data center GPU revenues more than doubled on a year-over-year basis in the last reported quarter, a trend that is likely to have continued in the third quarter.

Notably, AMD recently rolled out its new Radeon RX 5500 Series designed to deliver smooth gameplay in 1080p.

Notably, the company has also introduced Radeon RX 5500M GPU with 7nm technology for notebook PCs. The new line of GPUs includes several technologies, including Radeon Image Sharpening, AMD FidelityFX and Radeon Anti-Lag.

The company’s move to improve its processor portfolio strengthens competitive position against the likes of NVIDIA NVDA. We believe AMD’s portfolio strength is likely to have helped in expanding customer base and consequently the top line in the third quarter.

The company also announced latest lineup of Ryzen PRO 3000 Series desktop processors. With the aid of these products, AMD has been foraying into the high-end graphics card market. Consequently, if the latest GPU has been able to cater to the rising demand of users, then the impact is likely to get reflected in the company’s third-quarter revenues.

Moreover, the third-quarter performance is likely to reflect strong adoption of EPYC server processors. Notably, increasing adoption of AI techniques and ML tools in industries like gaming, automotive and blockchain are primarily responsible for driving GPU demand. The third-quarter results are likely to have benefited from this demand, with the company launching new graphics cards.

We believe that ongoing GPU roll outs, deal wins and product enhancements are likely to have bolstered the incremental adoption of AMD’s offerings, and consequently the top line in the third quarter.

However, a highly leveraged balance sheet is anticipated to get reflected in the third-quarter results.

Key Developments

The company introduced its first 7-nanometer Navi gaming GPUs.

Moreover, AMD had entered into a strategic partnership with Samsung Electronics Co., Ltd. with an aim to bring immersive graphics experience to smartphone users. Per the terms of the multi-year agreement, AMD’s high performance Radeon graphics solutions and technologies will be integrated with Samsung’s SoCs to enhance mobile applications.

AMD also rolled out the latest Xbox Game Pass to PC gamers, by which the players will be able to access more than 100 PC games for three-months with the purchases of selected products of AMD. We believe the extension of Xbox Game Pass to PCs will enable AMD to strengthen competitive position against Microsoft.

Other Stocks to Consider

Here are some other stocks you may consider, as our proven model shows that these too have the right combination of elements to post an earnings beat this quarter.

Advanced Energy Industries, Inc. AEIS has an Earnings ESP of +4.17% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

MeetMe, Inc. MEET has an Earnings ESP of +4.17% and a Zacks Rank #2.

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