Key Takeaways

  • Analysts estimate adjusted EPS of $0.47 vs. $0.13 in Q2 FY 2020.
  • Gross margin is expected to rise YOY.
  • Revenue is expected to post the second-fastest growth in more than four years, driven by surging demand and market-share gains.

Advanced Micro Devices Inc. (AMD) has enjoyed skyrocketing demand for its semiconductors and computer processors as millions of people have worked remotely during the COVID-19 pandemic. Despite a global chip shortage, some analysts say that AMD is taking market share from rival Intel Corp. (INTC) for the first time in 15 years.

Investors will look to see if AMD can maintain its torrid growth when the company reports earnings on July 27 after market close for Q2 FY 2021. Analysts expect that adjusted earnings per share (EPS) will more than triple year-over-year (YOY) as revenue almost doubles. AMD has performed well due to strong demand during the global chip shortage even though it's a "fabless" chipmaker and does not make the silicon wafers, or chips, in its products.

Investors will also focus on the company's gross margin, a key metric across the semiconductor industry that measures the degree of operational efficiency in a company's business. Analysts estimate that AMD's gross margin will improve significantly YOY, reaching its highest level in at least 18 quarters.

Shares of AMD took off in July 2020 and have far outpaced the broader market for much of the past year. AMD shares pulled back sharply in February, recouped part of its losses by late April, then fell to lower lows by mid-May 2021 after Q1 FY 2021 earnings were reported. The stock briefly underperformed the market. Since the May low, AMD shares have rebounded and are now solidly outperforming the S&P 500. As of July 21, 2021, AMD shares have provided a 1-year trailing total return of 56.9%, well ahead of 33.8% for the S&P 500.

One Year Total Return for S&P 500 and AMD
Source: TradingView.

AMD Earnings History

AMD adjusted EPS has grown at a torrid pace for most of the past four years, with only Q1 and Q2 FY 2019 seeing YOY declines in this area. Q1 FY 2020, representing the first portion of the pandemic, saw adjusted EPS climb by more than 600% YOY. Adjusted EPS continued to grow quickly throughout the pandemic, though at a slower pace in subsequent quarters. Analysts now estimate that adjusted EPS will nearly quadruple YOY to its highest level in at least 18 quarters for Q2 FY 2021.

AMD's revenue growth has been just as consistent. In the past 18 quarters, the company has posted just two periods of YOY declines. Three of the top four quarters as measured by YOY revenue growth have taken place in the three most recent quarters. Analysts expect that Q2 FY 2021 will continue this trend as revenue climbs by more than 85% YOY. At that pace, revenue could be more than triple what it was just four years ago in Q2 FY 2017.

AMD Key Stats
  Estimate for Q2 FY 2021 Q2 FY 2020 Q2 FY 2019
Adjusted Earnings Per Share $0.47 $0.13 $0.04
Revenue (billions) $3.6 $1.9 $1.5
Gross Margin 47.0% 44.0% 40.7%

Source: Visible Alpha

The Key Metric

As mentioned above, investors will also look to AMD's gross margin. This key metric measures gross profit, which is sales minus cost of goods sold, as a percentage of total sales. A company can increase its gross margin by either increasing sales or cutting costs, or a combination of both. Computer processor chips are essentially commodity goods, with little quality differentiation between chips manufactured by different companies. This means that producers have little pricing power, so the primary way to boost margins is by keeping costs low, especially during periods of weak sales. At the same time, keeping a lean operation also allows computer processor chip companies to maximize profits when demand is high. With the current semiconductor shortage the cyclical nature of the industry could impact AMD on the supply side, because the company doesn't make the silicon chip raw materials itself, and on the demand side, because demand for processors is up significantly.

AMD's gross margin has continued to increase over the past several years. Four years ago, in Q2 FY 2017, gross margin was 33.6%. It increased to 37.2%, 40.7% and 44.0% in the second quarters of 2018, 2019 and 2020 respectively. Now, analysts predict that gross margin will climb to 47.0%, its highest level in at least more than four years.