AMD Q2 FY2022 Earnings Report Preview: What to Look For

Advanced Micro Devices, Inc. (AMD) has enjoyed dramatic earnings and revenue growth in the past two fiscal years amid booming demand for for semiconductors throughout the COVID-19 pandemic. The company took steps to build on that momentum this spring with the $1.9 billion acquisition of Pensando Systems Inc., which adds data-packet processing chips to AMD's broadening array of offerings.

Investors will watch closely whether AMD can maintain its rapid growth amid a cooling global economy when the company reports earnings after the market on Aug. 2, 2022 for Q2 FY 2022. Analysts predict that AMD's adjusted earnings per share (EPS) and revenue will grow substantially year-over-year (YOY) in Q2, though at a slower pace than the prior-year quarter.

Investors will also be focusing on AMD's revenue in its Enterprise, Embedded and Semi-Custom segment, one of the company's two primary business segments. The segment—which includes server and embedded processors rather than processors for desktops and laptops—has been growing rapidly. For Q2, analyst estimate strong growth YOY, though that growth would be the slowest in nine quarters.

AMD shares have lagged the broader market for the last year. The shares initially trailed in fall of 2021, then outperformed roughly between November and January 2022. The stock since then has moved generally on a steep decline, marked by short advances and then steeper pullbacks. The stock advanced in the last week of July. During the past year, AMD has posted a total return of -10.8% compared to the S&P 500's total return of -5.8% as of Aug. 1, 2022.

AMD Earnings History

AMD’s adjusted EPS growth has been strong in recent years, having reported YOY increases for 11 straight quarters through Q1 FY 2022. Adjusted EPS growth even accelerated during the pandemic. In FY 2020 adjusted EPS grew by 113.1% YOY. While EPS continues to see growth, the rate has slowed. In Q2 of FY 2021, adjusted EPS grew by 349.5% YOY. Now, for Q2 of this year, analysts estimate 61.2% YOY growth.

AMD's revenue growth has also been robust. The company has posted 11 straight quarters of increases, peaking at a 99.3% increase in Q2 FY 2021. But that pace has been slower in recent quarters, with the company reporting 48.8% growth in Q4 FY 2021 and 70.9% in Q1 FY 2022. For Q2, analysts expect revenue to rise 69.5%, a significant deceleration from the same period a year earlier.

Source: Visible Alpha

The Key Metric

As mentioned above, investors will also be focused on a key metric: the amount of revenue generated by AMD's Enterprise, Embedded and Semi-Custom segment. The segment encompasses server and embedded processors, semi-custom System-on-Chip (SoC) products, development services, and game console technology. It does not include AMD's desktop and notebook microprocessors, which are included in the company's Computing and Graphics segment. The Enterprise, Embedded and Semi-Custom segment is growing at a rapid clip. The company has traditionally made GPUs for gaming computers and graphic design as their bread and butter. As the demand for chips has expanded into other areas such as machine learning or cryptocurrency mining, AMD saw an opportunity. These nontraditional demand areas continue to be a big growth area for AMD, creating a more dynamic part of the business.

In Q2 FY 2022, revenue in AMD’s enterprise, embedded, and semi-custom segment is expected to grow by 67.8% YOY to $2.7 billion. This is a slower pace compared to Q2 FY 2021 when the company reported 183.2% YOY growth to $1.6 billion. Analysts expect an even sharper slowdown on an annual basis, from a revenue increase of 113.2% in FY 2021 to half that pace, rising 55.6% in FY 2022.