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Why Did AMD Stock Rise 16% Last Week?

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Aug. 12 2019, Published 11:45 a.m. ET

Advanced Micro Devices (AMD) stock rose almost 16% last week despite peers’ underperformance. Analysts’ favorable sentiments, new product launches, and better-than-expected earnings drove the stock.

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AMD stock rose, peers fell

Advanced Micro Devices stock rose, while its peers fell last week. Intel (INTC) fell 6% last week. Intel stock rose at the end of July after its earnings and guidance beat the estimate. To learn more, read Intel Jumps 7% on Earnings Beat, Sale of 5G Modem Business.

IBM (IBM), NVIDIA (NVDA), and Oracle (ORCL) fell 8%, 4%, and 3%, respectively, last week. IBM stock rose in July after its earnings and the Red Hat acquisition. The company acquired Red Hat in a bid to strengthen its cloud computing business. NVIDIA hasn’t reported is its earnings yet.

In August, the escalating trade war has been hitting the equity market and tech stocks. The SPDR S&P 500 ETF fell on August 5 and recovered partially later in the week. The ETF fell about 0.3% last week. Read Trump Refutes China Trade Deal, Market Crash Ahead? to learn more.

Analysts are bullish on AMD stock

Analysts are bullish on Advanced Micro Devices stock. Recently, RBC raised its target price on the stock from $43 to $44. Cowen & Company increased its target price on the stock from $40 to $42. However, analysts mean target price for Advanced Micro Devices stock is $33, which implies a 3% loss from the current level.

Advanced Micro Devices expects its third-quarter revenues and gross margins to rise sequentially. For the third quarter, the company expects its revenues to increase 18% sequentially to $1.8 billion. Advanced Micro Devices expects its gross margin to rise by two percentage points sequentially to 43% in the third quarter.

Analysts expect the company’s EPS to rise 37% to $0.63 in 2019. For the second half of 2019, Advanced Micro Devices could drive the growth with its competitive products like Ryzen, Radeon, and EPYC processors. Analysts expect the company’s earnings growth to accelerate next year by 69% to $1.06.

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Second-generation EPYC processor

On August 7, Advanced Micro Devices launched its second-generation EPYC processor. Investors were receptive. As a result, AMD stock rose 15% on August 8.

Notably, Google (GOOGL) said that it would use the EPYC processor to power its new general-purpose machines. Twitter (TWTR) added that using EPYC in its data center infrastructure would reduce its total cost of ownership 25%. The company’s other customers and partners like Microsoft, Hewlett Packard Enterprises, Cray, Lenovo, and Dell announced that they would use the processor in their systems.

In the press release, Advanced Micro Devices’ president and CEO, Lisa Su, said, “Today, we set a new standard for the modern datacenter with the launch of our 2nd Gen AMD EPYC processors that deliver record-setting performance and significantly lower total cost of ownership across a broad set of workloads.”

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Better-than-expected earnings

In the second quarter, Advanced Micro Devices’ revenues and profits beat analysts’ estimate. The company’s revenues of $1.5 billion beat analysts’ estimate by 0.5%. Also, the company’s adjusted EPS of $0.08 beat the forecast by about 3.9%.

Advanced Micro Devices’ revenues rose 20% sequentially, while its net earnings rose 48% sequentially. Notably, the company’s operating profits rose  55% sequentially to $59 million. The rise was driven by higher earnings in the Computing and Graphics segment and the Enterprise, Embedded, and Semi-Custom segment.

Advanced Micro Devices’ Computing and Graphics segment rose 38% sequentially to $22 million. Overall, the segment rose due to higher graphics processing unit sales. The Enterprise, Embedded, and Semi-Custom segment’s operating earnings rose 31% sequentially to $89 million. The segment rose due to higher revenues from semi-custom and EPYC processor.

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