AMD Raises Full-Year Revenue Growth Guidance to 60%

Advanced Micro Devices AMD reported its seventh consecutive quarter of double-digit revenue growth thanks to broad-based PC, server, and game console strength. Management is confident in the firm’s product pipeline for 2021 and now expects 60% revenue growth for the full year (up from 50%). We believe this guidance should be easily attainable, particularly as Intel deals with manufacturing challenges.

We’re raising our fair value estimate for narrow-moat AMD to $109 per share (up from $101) on a probability-weighted basis as we await AMD’s acquisition of Xilinx. We assess AMD’s standalone fair value at $98 per share (up from $91). We assign a 75% probability of AMD’s acquisition of Xilinx closing, and our fair value for the combined entity would be $112 per share.

AMD’s second-quarter sales grew 99% year over year to $3.85 billion. Computing and graphics sales were $2.25 billion, up 65% year over year due to Ryzen processor strength and data center GPU growth. Client PC processor ASP was up year over year thanks to a richer mix of both desktop and notebook processor sales. In the enterprise, embedded, and semicustom segment, revenue was $1.6 billion, up 183% year over year, thanks to the ramp of the latest Sony PlayStation and Microsoft Xbox consoles (for which AMD supplies the CPU and GPU) and ongoing EPYC server CPU traction, including increased adoption of AMD’s third generation EPYC processors dubbed Milan. Data center revenue nearly doubled year over year thanks to growing cloud and enterprise adoption and now accounts for over 20% of total sales. Gross margins were up nearly 150 basis points sequentially to 47.5% thanks to a more favorable product mix.

Management expects third-quarter sales to be at a midpoint of $4.1 billion, which would be up 46% year over year. We expect AMD to benefit from broad-based growth over the rest of 2021, especially in data center sales. Specifically, data center sales are expected to be a larger percentage of total sales in the second half of 2021.

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