The semiconductor sector has helped lead the stock market for most of this year, and companies like Advanced Micro Devices and Nvidia might be under pressure to show strong guidance amid volatile fundamentals.
Last time AMD reported earnings, back in late January, its shares got a nice boost as investors welcomed the company’s predictions for strong 2019 sales growth. However, its Q1 guidance didn’t look all that strong. AMD said it expected Q1 revenue to be approximately $1.25 billion, plus or minus $50 million, a decrease of approximately 12% sequentially and 24% year-over-year.
“The sequential decrease is expected to be primarily driven by continued softness in the graphics channel and seasonality across the business,” AMD said in a press release. The year-over-year decrease is expected to be primarily driven by lower graphics sales due to excess channel inventory, the absence of blockchain-related GPU revenue and lower memory sales.
At the same time, AMD issued full-year guidance for high single-digit revenue growth, which was above analysts’ consensus.
“Despite near-term graphics headwinds, 2019 is shaping up to be another exciting year driven by the launch of our broadest and most competitive product portfolio ever with our next-generation 7nm Ryzen, Radeon, and EPYC products,” said Dr. Lisa Su, AMD president and CEO, quoted in the press release.
Investors might want to look for potential updates on the company’s 2019 guidance as well as on some of the products mentioned above when AMD holds its analyst call after earnings. The key might be whether AMD sticks with its guidance from earlier this year, or makes adjustments.
AMD shares are up nearly 50% year-to-date.
When AMD releases results, it is expected to report adjusted EPS of $0.05, down from $0.11 in the prior-year quarter, on revenue of $1.26 billion, according to third-party consensus analyst estimates. That revenue would represent a 23.7% drop from a year ago.
Options traders have priced in approximately a 10.3% stock price move in either direction around the upcoming earnings release, according to the Market Maker Move indicator on the thinkorswim® platform. Implied volatility was at the 46th percentile as of this morning.
Looking at the May 3 weekly option expiration, call activity has been high at the 28, 29 and 32 strikes, while put volume is highest at 27.
Note: Call options represent the right, but not the obligation, to buy the underlying security at a predetermined price over a set period of time. Put options represent the right, but not the obligation to sell the underlying security at a predetermined price over a set period of time.
It seems hard to remember now after a nearly uninterrupted rally in NVDA shares over the last two months, but the stock was in the dumps back in late January when the company cut guidance for Q4 earnings, citing “deteriorating” macroeconomic conditions, including in China. Shares fell 14% the day of that announcement, and dropped to as low as $131.60 in the following days.
Shares are up nearly 37% since then, but the question heading into earnings might be whether NVDA sees brighter times ahead. China’s Q1 economic growth came in better than analysts had expected, so it might be instructive to hear how NVDA executives view things in that region. Any update on inventory could also help investors get a better sense of how NVDA is chewing through some of the excess that existed at the end of Q4.
At the time it took down fiscal Q4 guidance,the company cited not only China, but also DataCenter revenue coming in short of expectations and a number of deals in the company’s forcecast not closing late in Q4 as customers shifted to a more cautious approach.
For Q1 of the company’s fiscal 2020, NVDA forecast revenue of $2.2 billion, plus or minus 2%. For fiscal 2020 as a whole, the company sees revenue flat to down a bit. Revenue fell sequentially in Q4, but would be about flat from quarter-to-quarter in Q1 if results match guidance.
Another thing investors might want to watch for when NVDA reports is any update on the company’s planned $6.9 billion acquisition of Mellanox, a leading supplier of end-to-end Ethernet and InfiniBand smart interconnect solutions and services for servers and storage. The acquisition, NVDA said last month, will unite two of the world’s leading companies in high performance computing.
“The emergence of AI and data science, as well as billions of simultaneous computer users, is fueling skyrocketing demand on the world’s datacenters,” CEO Huang said at the time.
When NVDA releases results, it is expected to report adjusted EPS of $0.79, down from $2.05 in the prior-year quarter, on revenue of $2.2 billion, according to third-party consensus analyst estimates. That revenue would represent a 31.5% decline from the same quarter a year ago.
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