Buy AMD Stock for New Peaks as Q2 Earnings Approach?
AMD will be a highlight of this week's earnings lineup, with the chip leader set to release its Q2 report after-market hours on Tuesday, August 5.
Like Nvidia
NVDA, which is scheduled to report later in the month, AMD stock has been performing well due to a combination of strategic product launches, strong AI demand, and favorable market conditions.
Recently hitting a 52-week high of $182 a share, let's see if fresh peaks are in store for AMD stock as its Q2 earnings approach.
AI Momentum & Data Center Growth
Gaining traction from major companies like Oracle
ORCL, Tesla
TSLA, and OpenAI, AMD's MI355X Graphic Processing Unit (GPU) is reported to deliver over 7X the compute power of its previous high-powered AI chip, the MI325X, and has become a serious contender to Nvidia's offerings.
Thanks to strong demand for AI accelerators, AMD has raised the price of its MI350 series chips to over $20,000. This is a great sign ahead of AMD's Q2 report, as the company's Central Processing Units (CPUs) and GPUs led to a 57% surge in its data center revenue in Q1.
Also fueling investor sentiment is that recent U.S. policy shifts have loosened export restrictions, allowing AMD to resume its chip shipments to China and potentially adding hundreds of millions in revenue. Rebounding and surging over +70% in the last three months, AMD stock is now up +45% year to date to impressively top the S&P 500 and Nasdaq's returns of +6% and +8% respectively, while even topping Nvidia's +32%.
AMD's Q2 Expectations
With analysts expecting another strong quarter of data center growth, AMD's Q2 sales are expected to be up 27% to $7.41 billion compared to $5.84 billion a year ago. However, AMD is also facing the impact of competitive pricing in the CPU and GPU market, with Q2 earnings thought to have dipped to $0.47 a share compared to EPS of $0.69 in the prior period.
Attributing to margin pressures, higher R&D spending on its next-generation GPUs is thought to have weighed on AMD's bottom line during Q2 as well.
That said, AMD has reached or exceeded the Zacks EPS Consensus for 25 consecutive quarters, dating back to April of 2019, and has posted an average EPS surprise of 2.3% over its last four quarterly reports. Plus, AMD is still projected to post double-digit top and bottom line growth in fiscal 2025 and FY26, but Wall Street is very much anticipating the company's Q3 guidance to see if the chipmaker can sustain its growth trajectory.
Monitoring AMD's Valuation
Like most of the leading chipmakers, AMD stock trades at a premium to the broader market at 44X forward earnings. While this is above the benchmark S&P 500's 23.3X, AMD is roughly on par with Broadcom's
AVGO forward P/E valuation and is near Nvidia's 40.7X.
It's also noteworthy that AMD trades far more reasonably than some of its AI chip-producing peers in terms of price-to-sales. In this regard, AMD has a forward P/S ratio of 8.7X, with Nvidia and Broadcom stock trading over 20X forward sales.
Bottom Line
For now, AMD stock lands a Zacks Rank #3 (Hold). To that point, it wouldn't be surprising if AMD stock hit new peaks, although better buying opportunities could be ahead after such a monstrous rally over the last three months. Keeping this in mind, AMD's Q2 report and guidance will be critical to more upside.
Zacks Names #1 Semiconductor Stock
This under-the-radar company specializes in semiconductor products that titans like NVIDIA don't build. It's uniquely positioned to take advantage of the next growth stage of this market. And it's just beginning to enter the spotlight, which is exactly where you want to be.
With strong earnings growth and an expanding customer base, it's positioned to feed the rampant demand for Artificial Intelligence, Machine Learning, and Internet of Things. Global semiconductor manufacturing is projected to explode from $452 billion in 2021 to $971 billion by 2028.
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