AMD Stock Earnings Beat Inspires All Except Themselves
By now, you’ve heard of the huge sentiment boost that Advanced Micro Devices (NASDAQ:AMD) received following its second-quarter 2018 results. While I like to go against the grain and offer a differing perspective, I must go with the consensus here. The AMD stock earnings report was simply impressive.
Heading into the earnings conference call, Wall Street consensus estimates pegged the AMD stock earnings per share to hit 13 cents. The actuals came in a penny higher, resulting in a 10% positive surprise according to CNBC. In the year-ago quarter, EPS was a loss of 2 cents.
On a GAAP-basis, the company reported a net income of $116 million. According to Advanced Micro’s CEO Dr. Lisa Su, this was the highest quarterly net income in seven years. In Q2 of last year, AMD reported a $42 million loss.
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Another big surprise was in the revenue picture, which saw the chip-maker deliver $1.76 billion. This haul was near the upper level of sales estimates, which ranged from $1.6 billion to $1.8 billion. Last year, management reported $1.15 billion, which meant that the top line grew by slightly more than 53%.
But the most impressive component of the AMD stock earnings report was its Computing and Graphics segment. Here, revenue skyrocketed to $1.09 billion, or a 64% year-over-year lift. AMD’s popular Radeon graphics card did much of the heavy lifting, while growth from the Ryzen processor was encouraging.
Overall, the segment boost proved that AMD is no longer Intel’s (NASDAQ:INTC) whipping boy. Intel hasn’t enjoyed the smoothest of product rollouts, and the iconic company has made some missteps. The difference now is that AMD can take advantage and decisively steal market share. That puts pressure on the big boys.
AMD Earnings Demonstrate Blockchain Independence
As things stand after the AMD stock earnings report, the chip-maker — which has struggled over the years — now has four consecutive quarters of net income. That’s something that vaunted rival Intel can’t say after it tripped up in Q4 2017.
But one of the lingering criticisms directed towards Advanced Micro is sustainability. AMD stock is hardly what you call a standard-bearer for market stability. Its choppiness and volatility reflects fears that AMD’s positive results are due to gimmicks or non-recurring events.
That bearish argument took a back seat with the latest AMD stock earnings report. While Computing and Graphics enjoyed a robust quarter, it did so on the strength of gaming and other sectors. It didn’t do well because of the blockchain, or more specifically, blockchain-related activities like cryptocurrency mining.
If you haven’t noticed, compared against bitcoin’s high of late last year, the original cryptocoin has faltered significantly. Were he presented a choice, our own Dana Blankenhorn would rather own Netflix (NASDAQ:NFLX). As for my fellow InvestorPlace contributor Lawrence Meyers? You probably shouldn’t broach the subject to begin with.
For what it’s worth, I’m a big proponent of the emerging blockchain economy and cryptocurrencies in general. But simple economics dictate that a significant component of the blockchain economy — mining — doesn’t occur robustly if crypto prices fall. Due to the enormous utility costs associated with mining, a smaller payout isn’t at all a compelling incentive.
And the numbers confirm this dynamic quite clearly. In the last AMD stock earnings report, blockchain-related sales fell from roughly 10% of total revenue to just 6%. That kind of segment loss would be devastating if a company didn’t have other avenues to lift the boat.
Fortunately, AMD had a few aces up its sleeve.
Should You Buy AMD stock?
So now the question becomes, do you believe the positives and buy AMD stock? Conventional wisdom says yes. I have to break with convention and say, not so fast!
I’m going to arouse a lot of anger with people emotionally vested in AMD, so let me just explain: the AMD stock earnings disclosure was exactly what you needed to see, and then some. It was impressive, and nothing can take away from that.
Except, perhaps, the executive sentiment itself. None of the insiders — and I do mean none — are buying into their own growth story. The last insider to purchase AMD shares was Dr. Su, and that was back in November 2012.
As TheBalance.com’s Eric Rosenberg points out, individual insider activity doesn’t tell us much. On the sell side, an exec could want to buy a new house or diversify their investments.
But is every AMD insider engaging the real-estate market or rebalancing their portfolios? It just seems very odd that nobody wants to bet on their own team. And the other major concern I have is the 78% institutional ownership. If things go awry with AMD shares, they’ll do so in a hurry.
If you are one of those folks deeply vested in AMD, you shouldn’t channel your anger towards me. I have no special insight into the organization other than what they reveal publicly. Rather, you should focus on those that do. Money talks, and the smelly stuff walks. In this case, the money is screaming.
As of this writing, Josh Enomoto is long bitcoin.
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