This may be your last chance to buy cheap AMD stocks
Advanced micro-systems (NASDAQ: AMD) the stock has seen a resurgence in the past two months, rising nearly 25% since mid-May. Shares of the chipmaker finally seem to put disappointed investors at ease after underperforming most of the first half of 2021.
But AMD’s recent rally made the action more expensive. It is now trading at 37 times rolling earnings, which is significantly higher than the multiple it was trading at in mid-May. Once AMD releases its second quarter 2021 earnings report in late July, that multiple is expected to rise and make the stock more expensive. Let’s see why this can be the case.
AMD usually walks on gas in the second half
AMD estimates it is expected to report second-quarter revenue of $ 3.6 billion in the middle of its forecast range. That would translate to a huge year-over-year increase of 86%. The company also expects an adjusted gross margin of 47% for the second quarter, which would represent a gain of three percentage points from the 44% figure for the period a year earlier. Unsurprisingly, Wall Street expects AMD earnings to triple year-over-year to $ 0.54 per share in the second quarter.
AMD said in its first quarter results release in April that “the year-over-year increase should be driven by the growth of all companies.” This growth cannot be expected to intensify in the second half of the year and give the AMD share price a big boost.
For example, $ 6.04 billion of AMD’s total 2020 revenue, or $ 9.76 billion, was made in the second half of the year. So the last six months of 2020 produced nearly two-thirds of AMD’s total revenue. A similar trend was also seen in 2019. AMD generated revenue of $ 3.93 billion in the last six months of the year out of total revenue of $ 6.73 billion, which means that 58% of turnover was achieved in the second half of the year.
In addition, AMD’s share price follows suit and goes supersonic in the second half of the year. Here is the 2020 stock price chart illustrating the same.
Also in 2019, the AMD share recovered strongly in the second half of the year.
Now it is quite correct that past performance is not an indicator of the future, but there are strong similarities between the second half of 2019, 2020 and this year.
AMD’s Ryzen processors set sales ablaze in 2019, especially during the holiday season, thanks to their technology and price advantage over Intelligence. AMD ended the fourth quarter of 2019 with its “highest quarterly client processor unit shipments in over six years,” driven by strong demand for both laptops and desktops. Additionally, the number of platforms using AMD’s EPYC server processors doubled in the last quarter of that year.
In the second half of 2020, AMD’s growth in client and server CPUs was supported by the arrival of a new catalyst in the form of game consoles. While AMD’s new Ryzen processors turned the heat up in the second half of the year, tremendous demand for next-gen consoles drove sales of semi-custom chips to spike faster compared to the previous console cycle. Server business, meanwhile, had another record quarter at the end of 2020 as AMD ended the year with more than 200 cloud platforms powered by its chips, which was double the level of the period of the previous year.
Don’t be surprised to see a similar trend unfold in 2021 as AMD sits on similar catalysts that are likely to skyrocket sales.
Why history can repeat itself
AMD has already given us signs of a strong financial performance in the second half of the year when it improved its forecast in April. The company had pushed back its revenue growth forecast for the full year to 50% from its initial expectations of 37% growth, citing strength across all its lines of business. It won’t be surprising to see AMD upping its forecast again when releasing its second quarter results, as demand for products powered by its chips shows no signs of slowing down.
The Enterprise, Embedded and Semi-Custom (EESC) segment, which significantly shaken things up for AMD in the first quarter with 286% year-on-year growth to $ 1.35 billion, looks set to maintain its incredible momentum . That’s because this segment caters to two rapidly growing areas: game consoles and server processors.
AMD chip power Sony‘s (NYSE: SONY) extremely popular PlayStation 5 console, as well as Microsoftnew Xbox models. The good news for AMD is that both companies are experiencing huge demand for their gaming consoles, which they haven’t been able to meet. Sony, for example, expects the PS5 to help it break a 24-year sales record in fiscal 2023 (ending March 31, 2023) with shipments of 22.6 million. units. Sony aims to sell 14.8 million PS5 units in the current fiscal year that ends in March 2022.
On the other hand, demand for central processing units (CPUs) from AMD’s servers may continue to improve thanks to the technological advantage it enjoys over Intel. The outlook for AMD’s servers recently jumped when it emerged that AlphabetGoogle Cloud is leveraging chips from the chipmaker’s EPYC server to launch new services. Add to this that Intel has once again been hit by delays in the server processor market, with its 10-nanometer Sapphire Rapids chips postponed to 2022, and it won’t be surprising to see AMD take more shares in its plus. great rival.
Meanwhile, AMD’s computing and graphics segment, which grew 46% year-over-year in the first quarter to $ 2.1 billion thanks to strong demand for Ryzen processors for computers. Radeon laptops and desktop and graphics cards, also running at full speed. AMD CEO Lisa Su recently pointed out that demand for Ryzen processors continues to outpace supply despite the company’s efforts to increase supply each quarter.
All in all, AMD’s revenue, earnings and share price could take off in the second half of 2021 and beyond. Now is the perfect time to buy this growth stock as its price-to-earnings ratio of 37 represents a significant discount from AMD’s five-year average multiple of 122. Additionally, analysts expect annual earnings growth of 32% over the next five years, AMD stock could prove to be a solid long-term bet at its current valuation.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.