Computer processor maker AMD (NASDAQ:AMD) reported results ahead of analysts' expectations in Q2 CY2024, with revenue up 8.9% year on year to $5.84 billion. Guidance for next quarter's revenue was also better than expected at $6.7 billion at the midpoint, 1.4% above analysts' estimates. It made a non-GAAP profit of $0.69 per share, improving from its profit of $0.58 per share in the same quarter last year.
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AMD (AMD) Q2 CY2024 Highlights:
- Revenue: $5.84 billion vs analyst estimates of $5.72 billion (2% beat)
- Adjusted Operating Income: $1.26 billion vs analyst estimates of $1.25 billion (1.2% beat)
- EPS (non-GAAP): $0.69 vs analyst expectations of $0.68 (in line)
- Revenue Guidance for Q3 CY2024 is $6.7 billion at the midpoint, above analyst estimates of $6.61 billion
- Gross Margin (GAAP): 53%, up from 49.5% in the same quarter last year
- Inventory Days Outstanding: 166, up from 158 in the previous quarter
- Free Cash Flow of $439 million, up 15.8% from the previous quarter
- Market Capitalization: $225.9 billion
“We delivered strong revenue and earnings growth in the second quarter driven by record Data Center segment revenue,” said AMD Chair and CEO Dr. Lisa Su.
Founded in 1969 by a group of former Fairchild semiconductor executives led by Jerry Sanders, Advanced Micro Devices or AMD (NASDAQ:AMD) is one of the leading designers of computer processors and graphics chips used in PCs and data centers.
Processors and Graphics Chips
The biggest demand drivers for processors (CPUs) and graphics chips at the moment are secular trends related to 5G and Internet of Things, autonomous driving, and high performance computing in the data center space, specifically around AI and machine learning. Like all semiconductor companies, digital chip makers exhibit a degree of cyclicality, driven by supply and demand imbalances and exposure to PC and Smartphone product cycles.
Sales Growth
AMD's revenue growth over the last three years has been strong, averaging 23.9% annually. But as you can see below, this quarter wasn't particularly strong, with revenue growing from $5.36 billion in the same quarter last year to $5.84 billion. Semiconductors are a cyclical industry, and long-term investors should be prepared for periods of high growth followed by periods of revenue contractions (which can sometimes offer opportune times to buy).
While AMD beat analysts' revenue estimates, this was a sluggish quarter for the company as its revenue only grew 8.9% year on year. This marks 4 straight quarters of growth, implying that AMD is in the middle of its cycle, as a typical upcycle generally lasts 8-10 quarters.
AMD's management team believes its revenue growth will accelerate, guiding to 15.5% year-on-year growth next quarter. Wall Street expects the company to grow its revenue by 25.5% over the next 12 months.
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Product Demand & Outstanding Inventory
Days Inventory Outstanding (DIO) is an important metric for chipmakers, as it reflects a business' capital intensity and the cyclical nature of semiconductor supply and demand. In a tight supply environment, inventories tend to be stable, allowing chipmakers to exert pricing power. Steadily increasing DIO can be a warning sign that demand is weak, and if inventories continue to rise, the company may have to downsize production.
This quarter, AMD's DIO came in at 166, which is 58 days above its five-year average, suggesting that the company's inventory has grown to higher levels than we've seen in the past.
Key Takeaways from AMD's Q2 Results
We enjoyed seeing AMD materially improve its gross margin this quarter. We were also glad its revenue outperformed Wall Street's estimates and revenue guidance for next quarter was also above expectations. On the other hand, its inventory levels increased. Overall, this quarter seemed fairly positive and shareholders should feel optimistic. The stock traded up 4.8% to $145.11 immediately following the results.
AMD may have had a good quarter, but does that mean you should invest right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.