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Advanced Micro Devices: Trend Flip


  • AMD reported strong Q1 results that the market viewed as mixed.
  • The chip company remains on track for substantial sequential revenue growth in 2H of 2020.
  • AMD should take meaningful market share from Intel this year.
  • The stock remains cheap based on out year EPS projections of over $3.50 per share.
  • This idea was discussed in more depth with members of my private investing community, DIY Value Investing. Get started today »

Following strong guidance for the rest of 2020, Advanced Micro Devices (NASDAQ:AMD) has slumped back to $50. The chip company was one of the few companies to provide guidance for the year leaving AMD on target for substantial growth for 2020. My investment thesis remains highly bullish on the stock as the company confirms a strong data center and console tailwind for the rest of the year.

AMD logoImage Source: AMD website

Follow The Trend

For several years, AMD investors have followed the positive trends in the business to higher stock prices. The Q1 results and especially the guidance for all of 2020 confirmed the trend remains intact.

While the revenue trend over the last few years has been spotty, the gross margin trend has been the friend to shareholders. For Q1, revenues were up 40% to $1.79 billion, but down 16% sequentially from $2.13 billion in Q4. Even with the lower sequential revenues, gross margins hit an eight year record at 46%.

Source: AMD Q1'20 presentation

Gross margins grew an impressive 5 percentage points from last Q1. Investors should expect gross margins on non-console revenues to continue rising above 50% for the year as all of the new 7nm products have margins above 50%.

Despite the positives, the numbers could be far better. AMD saw weakness in China and other parts of the world due to retailer closures. The chip company had originally guided towards Q1 revenues of $1.80 billion, plus or minus $50 million, while actual revenues were only $1.79 billion. Naturally, the market wants to see the chip company beat the mid-point target.

In addition, the data center sales remain relatively small with the segment only generating $348 million in sales while Intel (INTC) has racked up over $7 billion in quarterly sales for a couple of

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This article was written by

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Stone Fox Capital Advisors, LLC is a registered investment advisor founded in 2010. Mark Holder graduated from the University of Tulsa with a double major in accounting & finance. Mark has his Series 65 and is also a CPA.

Stone Fox Capital launched the Out Fox The Street MarketPlace service in August 2020.

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Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. 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.

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