Advanced Micro Devices, Inc. (NASDAQ:AMD) was a poor performer over the last few weeks; this due to soft guidance from last quarter’s earnings. But recently, the market’s sentiment is turning bullish towards this company, and the stock price is seeing support from management presentations and reports of a licensing deal with Intel.
Advanced Micro Devices: Financial Analyst Day
Advanced Micro Devices held its 2017 Financial Analyst Day Presentation where key figures from management, including the CEO, Lisa Su, presented a roadmap of the company’s competitive strategy and growth expectations for the next few years. However, unlike guidance, this time management gave the market a sense of growth and potential for AMD’s new product releases.
Advanced Micro Devices expects double-digit annual revenue growth for years into the future. And on top of this, the company is aiming to boost its gross margins to 40%-44% – a significant increase from the current gross margin of 33%. But even if AMD managed to double its current gross margins, it would be playing catch up with its primary competitor, Nvidia, on this metric. Nvidia has gross margins of almost 60%, and this a big reason why its stock performs so much better than AMD’s. Margins are crucial. And they are a key metric AMD needs to improve upon if it wants its stock to remain competitive against Nvidia going forward.
But the problem is more than just a comparison with Nvidia. AMD’s margins are currently too low for profitability, and this is a big deal. In the most recent quarter, the company lost 8 cents per share and posted an EBITDA loss of around $23 million. Boosting margins will be an excellent way for AMD to become profitable and deliver strong bottom line growth in the coming years.
Advanced Micro Devices’ Financial Analyst Day Presentation was highlighted by new product information. New products will propel AMD’s double-digit revenue growth and drive up gross margins over the next few years. The CEO, Lisa Su, stated quote:
“We are entering the next phase of our growth strategy through ramping our phenomenal new products across a diverse set of markets. AMD is the only company with the combination of high-performance computing and graphics technologies required to deliver truly immersive and instinctive computing experiences.”
For the data center, AMD unveiled Epyc- a product designed to capitalize on one of the biggest growth opportunities in chips. The first Epyc-based servers are expected to go live next month. AMD also provided updates on graphics with the Radeon Vega Frontier Edition for machine learning and advanced visualization which is expected to be available in the second half of this year. AMD will also update its current Zen offerings with the “Zen 2” and “Zen 3” CPU architectures that are expected to provide significant improvements in both performance and per WATT efficiency. These products are expected to be the driving force behind AMD’s gross margin improvements.
Advanced Micro Devices’ management team has successfully pushed back against the bearish narrative that had come to dominate the market’s view of the company following the first quarter earnings result. AMD has used its 2017 Financial Analyst Meeting to present a strong bullish case for their stock, and this narrative will be driven by double-digit revenue growth and margin improvements over the coming years.
The company’s pipeline is compelling and new product launches in CPU look likely to help management reach its aggressive growth goals by expanding the AMD’s foothold in the higher margin high-end market.