As with all competitor, a quarterly earnings report from a peer can present nice perception into the market. For Superior Micro Units (NASDAQ:AMD), the Q2’23 earnings report from Intel (INTC) supplies nice views on the surging demand for AI chips and a rebound in PC demand essential for AMD. My funding thesis stays extremely Bullish on AMD with the inventory nonetheless buying and selling down round $112 whereas different chips firms have rallied to multi-year highs.
Essentially the most rapid sign from Intel beating Q2’23 estimates and guiding up for Q3 is the rebound in PC demand. Most significantly, the stock correction seems over with OEMs not digesting chip stock.
Again in Q3’22, AMD shocked the market by slicing PC income estimates by $1 billion. The corporate rapidly went from $2 billion in quarterly CPU gross sales for PCs to lower than $1 billion.
Intel nonetheless reported Q2 Shopper Computing income was down 12% YoY to $6.8 billion, however the quantity was up $1.0 billion sequentially. The chip large guided up Q3 income to $13.4 billion, up $0.5 billion sequentially.
In Q1’23, AMD reported that consumer revenues had fallen additional to solely $739 million. AMD CPU revenues at the moment are far over $1 billion per quarter under the height ranges offering substantial upside potential when the PC market normalizes.
Intel mentioned a combined image for his or her enterprise within the close to time period resulting from AI. The chip large is seeing a pockets share shift from the sever CPU spend in the direction of AI chips.
The transfer is each good and unhealthy for AMD. The corporate has the MI300 AI GPU chip hitting the market in This autumn offering a powerful competitor to the booming demand for the H100 from Nvidia (NVDA), however the chip is not out in the marketplace but.
Within the close to time period, AMD may even see some suppressed information heart demand whereas heading into 2024. In the end, the corporate ought to see upside from AI demand for the MI300 together with the Alveo AI accelerator.
On the Q2’23 earnings name, Intel CEO Pat Gelsinger instructed the AI pipeline for 2024 had surged to $1 billion:
In my formal remarks, we mentioned we now have over $1 billion of pipeline, 6x within the final quarter.
Going again a couple of months, Morgan Stanley had estimated the AI potential for AMD was solely $400 million with upside potential to $1.2 billion. The Intel forecasts would counsel the AI potential for AMD is much greater subsequent yr when the MI300 is in full-scale manufacturing.
Nvidia guided up present quarter gross sales estimates by 50% to over $11 billion. The corporate instructed information heart gross sales would attain $7+ billion within the quarter.
AMD has solely seen information heart gross sales attain $1.3 billion in quarterly gross sales leaving an enormous hole from Nvidia. Even Intel nonetheless hit $4.0 billion in information heart gross sales throughout Q2’23, although the quantity is down almost 20% type 2022 ranges due partially to shedding market share to AMD.
The massive concern for AMD is whether or not information heart gross sales development stalls inflicting a miss to 2H gross sales targets whereas booming AI demand in the end boosts gross sales beginning in Q1’24, or possibly This autumn. The chip firm peaked at quarterly gross sales of $6.6 billion again Q2’22 and the present quarterly analyst estimates aren’t very aggressive.
A rebound in PC demand to extra normalized ranges locations AMD again on the This autumn’23 income goal of $6.5 billion alone. A PC rebound to regular digestion ($2 billion quarterly run price) together with greater information heart or AI demand results in vastly greater revenues in 2024.
The present analysts aren’t even factoring in a lot development within the Q2’24 income estimate of $6.76 billion. The quantity is simply 4% upside from Q2’22 regardless of probably surging demand from AMD coming into the AI GPU house.
AMD is about to report earrings after the shut on August 1. Buyers ought to focus much less on the Q2 numbers and even Q3 steering and focus extra on a return to extra normalized income ranges plus the upside from AI.
Our view has lengthy held that AMD has the earnings potential of $5 to $6 and the AI alternative is all upside to this view.
The important thing investor takeaway is that AMD continues to be $50 under all time highs whereas Nvidia has soared over $100 above the late 2021 highs. Buyers ought to use the present weak point in AMD to load up on the inventory whereas leaving some capital to purchase any weak point following Q2 earnings as a result of potential for close to time period disappointment resulting in long run alternatives.