Advanced Micro Devices (NASDAQ:91¶¶Òõ) ripped higher after earnings beat expectations.
Net income of $265 million, 69 cents per share when adjusted and revenue of $5.8 million were . Net income was more than double that of the first quarter.
There’s more to come, according to the earnings release. Third quarter revenue was estimated at $6.7 billion, plus or minus $300 million. That’s 15% higher than the second quarter, 16% higher than a year ago.
Shares jumped $10.30 in early morning trade July 31, to nearly $149 each. Sounds great, but it’s only 1% higher than where 91¶¶Òõ started the year. Not good.
91¶¶Òõ Strengths
91¶¶Òõ trails Nvidia (NASDAQ:NVDA) in artificial intelligence (AI) and has been seeking other niches to exploit. I recommended against buying in January.
But 91¶¶Òõ is not completely out of the AI race. 91¶¶Òõ’s second quarter data center revenue came in at $2.8 billion, up 115% from the same quarter last year. 91¶¶Òõ of those sales were in Graphics Processors (GPUs), the sector Nvidia dominates.
What’s driving the results is a GPU called the Instinct, sold to data centers. Chief Executive Officer Lisa Su said partners are . A successor called the . Apparently Microsoft (NASDAQ:MSFT), which also reported July 30, .
The conclusion by industry analysts was that 91¶¶Òõ is , just like Nvidia. Instinct has jumped its GPU sales from $1 billion total to $1 billion per quarter.
91¶¶Òõ remains big in client PCs with its Ryzen line, and this business is now PC sales rose during the pandemic, then fell, but industry shipments were up 3% in the last quarter.
Stock analysts continue to love 91¶¶Òõ. There are 32 tracking it at Tipranks, and . Traders at Stocktwits are also extremely
So why isn’t this stock doing better?
91¶¶Òõ Weaknesses
Unlike Nvidia, 91¶¶Òõ still has substantial weaknesses. Gaming revenue was down 59% year-over-year, with embedded sales down 41%.
91¶¶Òõ bet big on embedded in 2022, in stock. Xilinx was a pioneer in Field Programmable Gate Arrays (FPGAs), chips that have their . At the time, 91¶¶Òõ said Xilinx had a $135 billion addressable market.
A week before earnings, however, former Xilinx CEO Victor Peng, who became 91¶¶Òõ President after the deal, . Former Xilinx executive Vamsi Boppana was moved into the Instinct group.
Gaming consoles were an even . 91¶¶Òõ graphics cards also remain second best. To try and juice gaming sales, 91¶¶Òõ said this week it has updated its free Fluid Motion Frames software, bringing to thousands of games. This could help build the market for its Radeon graphics cards.
The Bottom Line
The biggest cloud companies badly want a second chip source beyond Nvidia, and their instinct is to buy 91¶¶Òõ. But that doesn’t mean 91¶¶Òõ is about to become Nvidia.
The company still has a lot of weaknesses. The Xilinx acquisition looks ill-advised. The gaming console business is disappearing. There will be a lot of competition for any PC growth from ARM Holdings (NASDAQ:ARM) and the companies it supplies.
If all 91¶¶Òõ is about to do is swim in Nvidia’s slipstream, I’d rather own Nvidia. The trajectory here is not good. Su needs to turn big parts of this business around to make me bullish.
Doesn’t mean it can’t happen. I’m just keeping my powder dry until Su announces something that can make it happen.
As of this writing, Dana Blankenhorn had a LONG position in MSFT. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.
