As Advanced Micro Devices (AMD) prepares to report Q2 results after the close today, Intel has already given a big gift to management. AMD CEO Lisa Su can now direct the market’s attention to the long-term narrative, with less focus on the short-term results that were potentially impacted by coronavirus disruptions.
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AMD soared to $70, based on Intel’s delayed shift to faster processing nodes. Investors should prepare for some mixed Q2 results as Intel held onto datacenter customers during the crisis, but the long-term story is even brighter headed into the second half of 2020.
Intel Delays
When Intel reported Q2 earnings, the chip giant gave AMD the greatest gift possible. Instead of confirming a path to smaller chips, Intel actually announced the move to 7nm technology will be delayed by up to 12 months.
The chip giant is still in the process of moving to 10nm technology, with this transition also getting pushed back. Now, the CPU chips aren’t expected to reach the market until early 2023, with server chips not being released until the second half of the year.
As AMD has plans with foundry partner TSM Semi to move to 5nm technology hopefully by next year, the company could have a technological edge on Intel. The stock rallied 16.5% on Friday due to this news, as AMD has limited market share in the CPU market for a company heading towards a solid technology lead over the next couple of years. Intel can’t even guarantee it will improve the 7nm chip yields during this time period to allow for an actual release.
Q2 Earnings Preview
AMD is set to report some mixed Q2 results as server sales are probably struggling due to COVID-19 implementation delays and the console sales ramp in Q3. Analysts have the company reporting Q2 revenues of $1.86 billion for ~21% growth over the last year. The EPS estimate is $0.17 to more than double the reported number from last Q2.
Investors are definitely looking forward to Q3 revenues of $2.3 billion, followed by $2.47 billion in Q4. AMD is set to start taking considerable market share, with Intel expected to see Q4 revenues dip as much as 14% from last year. Meanwhile, AMD could grow about 20% during the remainder of 2020.
For AMD shareholders, the Intel 7nm delay de-risks the Q2 numbers and Q3 guidance. The stock has been a story stock for years now, and the best plan is to focus on gaining market share during the shift to 5nm technology in the next year.
The market share goal could easily become 25% or even 50%. For a total addressable market of $80 billion, AMD could generate revenues of $20 or $40 billion in the extended future, while revenues are only forecasted to top $10 billion in 2021.
Takeaway
The key investor takeaway is that the stock has touched $70 for the first time in history. The stock now has a market cap of over $80 billion, but investors should realize that Nvidia has used a dominant position in the GPU space to generate a $250 billion market cap. The rally in AMD still has plenty of legs as long as Intel continues to delay new technology.
What’s interesting is that AMD’s popularity is also rising. In July, the change in the number of TipRanks’ best-performing portfolios holding AMD increased by 0.6%. This gives the stock a “very positive” investor sentiment.
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Disclosure: No position.
