New AMD Price Target as the Shares Go Parabolic
Advanced Micro Devices is on fire. Here's my plan for the stock, which has 'invaded' my top-10 holdings.
You've reached your free article limit
You've read 0 of 1 free Pro articles.
All Hail Lisa Su!
You've heard me say it before. Well, the kid from Queens, NY has done it again.
Advanced Micro Devices (AMD) released its fiscal first-quarter financial results on Tuesday evening and did they ever rip the cover off of the ball. Yowza!
For the three-month period ended March 28, AMD posted adjusted EPS of $1.37 (GAAP EPS: $0.84) on revenue of $10.253 billion. These top and bottom-line results both decisively beat Wall Street's consensus view, while the revenue sprint was good enough for year-over-year growth of 37.8%.
On the quarter, Chair and CEO Lisa Su commented in the press release...
“We delivered an outstanding first quarter, driven by accelerating demand for AI infrastructure, with Data Center now the primary driver of our revenue and earnings growth. We are seeing strong momentum as inferencing and agentic AI drive increasing demand for high-performance CPUs and accelerators. Looking ahead, we expect server growth to accelerate meaningfully as we scale supply to meet demand. Customer engagement around MI450 Series and Helios is strengthening, with leading customer forecasts exceeding our initial expectations and a growing pipeline of large-scale deployments providing us with increasing visibility into our growth trajectory."
Operations
For the period reported, as AMD generated revenue growth of 37.8%, the cost of those sales increased 30.7% to $4.837 billion. This left a gross profit of $5.416 billion (+45%) on a gross margin of 53%, up from 50%.
GAAP operating expenses grew 34.5% to $3.94 billion. This left GAAP operating income of $1.476 billion (+83.1%) on an operating margin of 14% up from 11%. After making adjustments primarily for stock-based compensation and the amortization of acquisition-related intangibles, operating income grew 43% and operating margin improved from 24% to 25%.
Once accounting for interest, other income & expenses and taxes, GAAP net income printed at $1.383 billion (+95.1%). This works out to $0.84 per fully diluted share compared to $0.44 for the year-ago period. On an adjusted basis, net income increased 45% to $2.265 billion and the fully diluted EPS of $1.37 compares very well to last year's $0.96.
Segment Performance
-- Data Center generated revenue of $5.775 billion (+57.2%), producing operating income of $1.599 billion (+71.6%).
-- Client & Gaming generated revenue of $3.605 billion (+22.6%), producing operating income of $575 million (+15.9%).
-- Embedded generated revenue of $873 million (+6.1%), producing operating income of $338 million (+3.1%).
Guidance
For the current quarter, AMD is projecting revenue of $10.9 billion to $11.5 billion. This is a major beat as Wall Street had been looking for something close to $10.5 billion. At the midpoint, this would be good for year-over-year growth of 46%. Adjusted gross margin is seen at roughly 56%.
Fundamentals
During the period reported, AMD generated operating cash flow of $2.955 billion (+214.7%). Out of this number came capex spending of $389 million, leaving free cash flow of $2.566 billion (+252.9%) as free cash flow margin improved from 10% to 25%. The company does not return capital to shareholders.
Turning to the balance sheet, AMD ended the period with a cash position of $12.347 billion and inventories of $8.045 billion. That put current assets at $28.628 billion. Current liabilities add up to $10.506 billion, including short-term debt of $874 million. This leaves AMD's current and quick ratios at a very healthy 2.53 and 1.96, respectively.
Total assets amount to $79.642 billion. That does include "goodwill" and acquisition-related intangibles of $41.498 billion. I don't love 52% of total assets being labeled as intangible but a lot of this can be blamed on the Xilinx acquisition in 2022.
Total liabilities less equity comes to $15.18 billion. This does include long-term debt of $2.35 billion. AMD could, if need be, handle its entire debt load several times over out of pocket.
This is a strong balance sheet.
My Opinion
Advanced Micro Devices is on fire. The company is executing at a very high level as we knew Lisa could and would get it done.
Sales are soaring. Profitability is rising. Cash flows are on the march. The balance sheet is in great shape.
The only possible negative, in my opinion, is that the stock has gone parabolic. This has taken the valuation to a new level as the stock has been re-rated.
Readers know that I had recently cancelled my $334 price target. Take some more off? I think I have to, at these $405+ levels. We're talking about windfall profits here.
The counter point is that I need to maintain a healthy enough long position to keep the Sarge-folio exposed. AMD is currently the ninth largest position (in percentage terms) in the Sarge-folio as the memory/storage names have simply invaded my "top 10" thanks to their recent meteoric rise.
Until I figure out exactly what this stock is trying to do, I am setting a temporary $456 price target price while I observe this morning's gap-up open and wait for a recognizable technical pattern to emerge.
Related: The Pros Are Betting on The VIX
At the time of publication, Guilfoyle was long AMD equity.
