What to look for when Advanced Micro Devices (AMD) reports Q1 2020 earnings

Advanced Micro Devices (NASDAQ: AMD) is set to report first quarter 2020 earnings results on Tuesday, April 28, after the market closes. Analysts expect the company to report EPS of $0.18 which is up 200% from the $0.06 reported a year ago. Sales are expected to jump 40% to $1.78 billion.

AMD’s stock has gained 104% over the past one year and over 14% in the last three months. In general, the sentiment appears to be optimistic on AMD’s performance going forward. The company is expected to benefit from the current trend of people staying at home and working from home.

As companies need more powerful chips for data centers and cloud services on the professional side, and as more activities move online like digital transactions and gaming on the personal side, AMD is expected to see an uptick in demand that could bode well for its business.

AMD is likely to benefit from its strong product pipeline which includes the Radeon Pro W5500 workstation graphics card, the Ryzen Embedded processors and the EPYC processors which are being used by several leading tech companies. The Radeon graphics and Ryzen processors are also expected to help drive growth in the PC and gaming markets going forward.

At its Analyst Day in March, AMD said it plans to roll out its Zen 3 core processors in late 2020. The company also plans to expand its ROCm open source software platform for the data center by launching the ROCm 4.0 later this year for high-performance computing exascale systems and machine learning workloads.

However, the volatility of the industry coupled with the current health crisis and economic downturn have raised concerns. A report by Gartner suggests that worldwide semiconductor revenue is forecast to decline 0.9% this year. This is down from the previous quarter’s estimate of a growth of 12.5%. Memory revenue is estimated to grow nearly 14%.

As there is too much uncertainty owing to the coronavirus outbreak and the economic downturn, there is a need to be cautious as getting clarity on the situation is likely to take time. AMD’s stock could take a hit if the results are impacted by the current crisis. The company also faces tough competition in the market from Intel (NASDAQ: INTC) and Nvidia (NASDAQ: NVDA).  

 In March, AMD stated that it expects the impact from COVID-19 to be modest in the first quarter of 2020 and estimates revenue to come at the lower end of the guidance of approx. $1.8 billion, plus or minus $50 million. The company said there was no change to its full-year 2020 financial guidance.   

In the fourth quarter of 2019, AMD beat revenue and earnings expectations with a 50% growth in revenue to $2.13 billion and adjusted EPS of $0.32.

The majority of analysts have rated the stock Buy and it has a high forecast of $66.00 which represents a 17% upside from the current level.

Last week, Intel reported its first quarter 2020 earnings with a 23% jump in revenues to $19.8 billion and a 63% increase in adjusted EPS to $1.45. Intel expects revenue of about $18.5 billion and adjusted EPS of $1.10 for Q2 2020.