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Why AMD shares soar today – Motley Fool

What happened

Chip Company Shares Advanced Micro Devices (NASDAQ: AMD) took off on Wednesday after a mixed report for the fourth quarter. AMD generated less revenue than expected, and its profits were in line with analysts' estimates. The company's management in the first quarter called for a sharp decline in revenues, but firm leadership for the whole year gave investors a reason for joy. Shares rose 15.2% at 11:30 am ET.

So what

AMD reported that revenue in the fourth quarter amounted to $ 1.42 billion, up 6% over the same period last year, but about $ 20 million lower than the average analyst estimate. Revenues from computing and graphics increased by 8.6% year on year thanks to Ryzen's powerful PC processors. The corporate, embedded and semi-user segments showed stable income, while the growth in sales of processor resources of the EPYC server compensated for the decline in revenue in the semi-periodic mode.

Upward stock chart.

Image source: Getty Images.

Earnings per share excluding GAAP were $ 0.08, compared with $ 0.01 in the previous year and in line with analysts' expectations. Non-GAAP gross margin was 41%, an increase of 7 percentage points over the previous period, with improvements due to Ryzen and EPYC.

The first quarter AMD management was absolutely terrible thanks to the cryptocurrency bubble rupture. It is expected that the company's revenue will be 1.25 billion dollars, plus or minus 50 million dollars, which means a decrease of 24% over the same period last year. AMD is still working with an excess stock of video cards, and the expected growth from Ryzen and EPYC will not be enough to compensate for the weakness of the graphics.

However, AMD still expects revenue growth in 2019. The company sees high revenue growth in unambiguous terms this year, due to Ryzen, EPYC and GPU data center products. This optimistic outlook for the whole year is likely to boost stocks.

What now

AMD will launch a new generation of Ryzen processors built on a 7nm manufacturing process sometime in mid-2019. The second generation of EPYC server processors is also coming soon, and AMD is aiming to win a two-digit share in the lucrative data center market.

The growth of the CPU business will have to compensate for the fall in the GPU business. AMD is going to start 2019 with a sharp decline in revenue, but it relies on the fact that a strong second half more than compensates for problems with the GPU. With the growth of stocks, investors buy into this story.

Timothy Green has no position in any of the mentioned stocks. Motley Fool has no position in any of the mentioned shares. Motley Fool has a disclosure policy.

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