AMD Blowout Signals Continued Opportunity In Nvidia And Another Sector As Well

Last night after the close of regular market trading, AMD reported numbers for its June quarter.

The company reported earnings of $0.02 per share on revenues of $1.22 billion for the quarter ended June 30. Wall Street sell-siders were expecting a break-even quarter on revenues of $1.16 billion, so a nice beat on both ends.

For the current quarter, AMD is guiding revenues higher by 23% (+ or - 3%) sequentially to $1.5 billion (midpoint) versus the current Street consensus of $1.39 billion going into last night's earnings event.

The company is raising gross margins (GMs guidance to 34% for the September quarter compared to the 33% achieved in the quarter just reported).

More importantly, AMD is now guiding 2017 revenues to an increase in the mid-teens to upper teens from 2016 levels. Using 15% and 18% as the approximate range, we get revenue guidance for the year of between $4.91 billion and $5.04 billion. Taking the mid-point of the two gives us $4.98 billion expected revenues for 2017 based on the guidance provided by AMD management last night.  Street consensus going into the event was $4.82 billion.

AMD management also said that the company will be free cash flow (FCF) positive in 2017 and that GMs for the year will be 34%. Management is also expecting licensing gains of $52 million, positive adjusted net income for 2017 which will be accompanied by a drawdown in net inventories in 2017.

Our second quarter results demonstrate strong growth driven by leadership products and focused execution," said Dr. Lisa Su, AMD president, and CEO. "Our Ryzen desktop processors, Vega GPUs, and EPYC data center products have received tremendous industry recognition. We are very pleased with our improved financial performance, including double digit revenue growth and year-over-year gross margin expansion on the strength of our new products.

Three takeaways from AMD earnings  for investors that could have important ramifications and/or investment opportunities in other companies:

First is that the chatter about crypto currency mining is leading to blowout demand for AMD chips was validated on the AMD calls which means, Nvidia becomes an absolute must own at current levels. AMD CEO Lisa Su said on the conference call that sales of the company's Radeon RX GPUs saw strong demand from the cryptocurrency mining and gaming sectors.

The second takeaway is the fact that AMD confirmed that it was seeing "tremendous opportunity" in the data center area. Think fiber optic-component sector there.

The third takeaway is in the companies that spending massive amounts of money to build these data centers. Think all the major cloud players that are spending millions and tens of millions of dollars to build-out their datacenter in order to meet the burgeoning demand thanks to the ongoing shift to the cloud.

I am already invested in the opto-comp sector and the cloud players but seriously considering adding to my investments in both the sectors.

AMD is not cheap by any means but impressive numbers from the company, nonetheless.

(Long nvda, long and short nvda options)

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