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Earnings Preview: Advanced Micro Devices Reports After Market Close

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July 25, 2017
Semiconductor Chip
iStockphoto.com/PhotonStock

Chipmaker Advanced Micro Devices (AMD) reports second-quarter earnings today after market close. For the most part, shares have recovered from their significant drop after last quarter’s earnings and the stock is about 10% below its 52-week high of $15.55.

In recent quarters, AMD has benefited from trends that include augmented reality and virtual reality, cryptocurrency mining, and growing demand for high-powered CPUs and GPUs for other applications. The company has launched several products in recent months, and has announced plans to continue rolling out new products throughout the rest of the year.

The company continues to expand its Ryzen chips to target multiple markets, including the recently launched Ryzen Pro CPUs, and plans to launch mobile Ryzen chips later in the year, according to a company press release. The company started to release its Vega graphics cards, and. on top of those products, AMD just launched its line of EPYC server chips for data centers, with the first EPYC-based servers shipping in June according to the company.

While competition is fierce in the CPU market with major players such as Intel (INTC), it looks like some of AMD’s new products have been well received based on recent market share reports from PassMark, which charts market share by looking at the number of performance tests conducted with chips. According to PassMark’s recent estimates, AMD’s CPU market share at the start of the third quarter this year increased to 23.10% from 17.50% in the year-ago period.

It remains to be seen how a lot of the new offerings will stack up against other products in the long run. AMD faces significant competition from Nvidia (NVDA), Intel (INTC), among others as it continues to expand the products it sells. On top of the many competitors, the semiconductor industry can be very volatile and demand for different semiconductor based components can shift quickly as technology continues to develop at a rapid pace. 

AMD stock YTD performance charted on thinkorswim platform

FIGURE 1: A VOLATILE STOCK.

Advanced Micro Devices (AMD) can be very volatile in trading, gapping up and down on a somewhat regular basis. The stock started the year dropping to a low of $9.42 before spiking to a high of $15.55. The stock gave up most of those gains in the first part of the second quarter, but it has rebounded over the past few months and is up 23.88% year-to-date. Chart source: thinkorswim® by TD Ameritrade.  Data source: Standard & Poor’s. Not a recommendation. For illustrative purposes only. Past performance does not guarantee future results.

AMD Earnings and Trading Activity

For AMD’s second-quarter earnings, the company is expected to breakeven on revenue of $1.16 billion, according to third-party consensus analyst estimates. Revenue is expected to grow 12.9% year-over-year and earnings coming in at breakeven is an increase from the $0.05 loss per share reported in Q2 2016.

Historically, AMD has been a volatile stock in post-earnings trading. In the past eight quarters, the stock has averaged a one-day move of 15.6% in either direction the day after its earnings release, according to Schaeffer’s Investment Research. After last quarter’s report, the stock dropped 24.2% in trading the next day.

Looking at options activity, traders have priced in about a 10.8% potential share price move in either direction around the earnings release, according to the Market Maker Move indicator on the thinkorswim® platform. In short-term options trading at the July 28 expiration, calls have been active at the 14.5 and 15 strike prices and puts have been active at the 13.5 and 14 strikes. As of this morning, the implied volatility sits at the 60th percentile. 

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.

Looking Ahead

In addition to all the earnings reports this week, we’ve also got the Fed’s July meeting and the first estimate for Q2 GDP coming out on Friday. There likely won’t be much new information from the July meeting since Fed Chair Janet Yellen just delivered her semiannual Congressional testimony, but the GDP figure could lead to heightened volatility in markets depending on the results. If you have time, make sure to check out today’s market update to see what else is happening.

Good Trading,
JJ
@TDAJJKinahan

NC
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