Advanced Micro Devices (AMD) just launched its EPYC Rome processor. The specs show superior performance when compared to Intel's (INTC) latest Xeon processor. Not surprisingly, this caused Alphabet Inc.'s subsidiary Google (GOOGL) (GOOG) and also Twitter (TWTR) to transfer some (but reportedly not all) of their business from Intel to AMD. It would not be surprising if Intel's other cloud customers were to follow their lead. A very close examination of the Q2 earnings transcript suggests that perhaps none of this was factored into AMD's Q3 guidance. Investors who buy aggressively now will probably benefit from share price surges due to likely analyst upgrades and a positive Q3 earnings surprise.
AMD Snags Google and Twitter With EPYC Rome Launch
AMD officially launched its EPYC Rome processor on Aug. 7, 2019. The new product is superior to its main competitor Intel's processors in virtually all respects. Here's a comparison of just a few crucial variables for EPYC 7601 versus Intel's Xeon E5-2699A v4, taken from AMD's EPYC Presentation:
- Integer (SDS, Cloud, Visualized IT): 47% higher performance
- Floating Point (Fast Data, Analytics, HPC): 75% higher performance
- Memory Bandwidth: 2.4X better
- EPYC's 7nm process versus Xeon's 14 nm process
Indeed, AMD's EPYC is now perceived as the industry "leader" rather than a mere "alternative" to Intel's Xeon. Not surprisingly, AMD's CEO revealed that AMD's superior product allowed it to snag Google and Twitter as clients.
To be fair, Intel stated that Google and Twitter still remain clients to some extent. But, when you factor EPYC's superiority, and then further consider the fact that Intel is behind schedule (it does not plan to release its new chips until sometime next year), it's likely that Intel will continue to lose even more market share to AMD.
This New Market Share Probably Adds To Q3 Guidance
As we reported in a prior article last week, AMD's shares fell sharply based on Q3 revenue guidance that missed Wall Street's expectations by $150 million (a mere fraction of the then-projected $1.8 billion Q3 revenue). The Google/Twitter news probably cures this, and may even lead to a huge Q3 positive earnings surprise.
In reaching this conclusion, we paid close attention to the question and answer session of the Q2 Earnings Transcript. Specifically, the following exchange took place:
Thank you. Our next question is coming from Ross Seymore from Deutsche Bank. Your line is now live.
Hey guys, thanks for letting me ask a question. Lisa, maybe this is something you will address next week in the Rome launch, but . . . . A year ago, you talked about the market share goals. I think it was double-digit market share four to six quarters after you hit the 5% market share, any sort of update on the timing and/or comfort around hitting that target?
Yeah. So I think Ross we feel good about hitting the right target. I'm not ready to update that yet. I think we want to get through. There is a lot of platforms to launch . . . .
Our opinion is that the above exchange suggests that the Q3 outlook did not factor events that were not foreseeable "a year ago" (meaning, of course, Google and Twitter). And this will probably result in a huge positive earnings surprise for Q3.
Intel's Other Clients Might Also Go To AMD
As outlined above, EPYC is now the cutting-edge industry leader. Rhetorically, unless Intel's other clients are still using flip phones and typewriters, why wouldn't they jump aboard the AMD train?
Analyst Upgrades Seem Inevitable
According to Nasdaq.com, of the 19 firms rating AMD, nine analysts recommend hold, one recommends buy, and the remaining nine recommend a strong buy. So, there are 10 firms capable of upgrading their rating.
Their ratings were issued prior to EPYC's launch. Since the launch, AMD has acquired two new huge clients - Google and Twitter - and the company's launch presentation shows that they continue to expand.
Meanwhile, AMD's main competitor, Intel, is losing business to AMD as outlined above. As we further stated earlier, Intel's new chips are behind schedule and won't be released until some time next year.
This is the perfect storm for major analyst upgrades. Such news will of course cause the stock to skyrocket. Indeed, as of the writing of this article (Aug. 8, 2019), AMD already is up 14.27% from the prior close, without the likely upgrades.
EPYC already has proven to be a huge catalyst for major gains in AMD's share price. This game-changing processor already has allowed AMD to snag two major clients at the expense of the company's main competitor. Moreover, Intel is behind schedule, while AMD continues to gain even more ground. Analyst upgrades are likely on the way. The game plan here is a no brainer - buy aggressively.
Disclosure: I am/we are long AMD. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.