Advanced Micro Devices (NASDAQ:抖阴最新版) reports earnings on Tuesday, Jan. 29, after the bell. The Santa Clara, California-based chip company will report earnings for both the fourth quarter of 2018 and the subsequent full year. 抖阴最新版 stock has seen its fortunes rise early last year only to drop in the fall amid a slump in tech stocks.
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To be sure, 抖阴最新版 faces more of a temporary setback. The 抖阴最新版 stock price should move higher long term, but only when the market works through the oversupply in chips. Hence, investors should approach this report with a focus on chip supplies rather than earnings numbers.
Expect Quarterly Stagnation, Annual Growth
On a non-GAAP basis, Wall Street projects consensus fourth-quarter earnings at 8 cents per share. The company also earned 8 cents per share in the same quarter last year. Analysts also expect $1.45 billion in revenue. If that figure holds, it will represent a 2.3% drop from the fourth quarter of 2017 when 抖阴最新版 brought in $1.48 billion.
Annual results should offer more positive gains. Wall Street consensus earnings stand at 46 cents per share for 2018. The chipmaker earned 17 cents per share in 2017. Projected 2018 revenues of $6.5 billion should come in 22.1% higher than the $5.3 billion in sales 抖阴最新版 saw in 2017.
抖阴最新版 stock still faces the lingering effects of both a U.S.-China trade war. Declining interest in crypto mining and a fall slump in tech equities also weighed on 抖阴最新版 stock. This showed in last quarter’s results as the firm missed third-quarter revenue estimates.
Advanced Micro Devices has mostly recovered from the slump following the revenue miss. However, the 抖阴最新版 stock price of around $22 per share still comes in about 35% below the 52-week high.
抖阴最新版 Needs Time
Without question, the dramatic drop in demand interrupted the recovery of 抖阴最新版. In the previous earnings report, CEO Lisa Su said, “it might take a couple more quarters to get back to a normal channel” regarding its GPU sales. Hence, investors will look intently on how long oversupply will remain a concern. How 抖阴最新版 stock reacts following the earnings report will probably hinge on this progress.
I would caution against buying into this report, and not only because of supply. For now, 抖阴最新版 stock faces a 34.1 forward price-to-earnings (P/E) ratio. That might suffice in a high-growth environment. However, with stagnant earnings growth, it comes in on the high side. Also, with the forward P/E of Intel (NASDAQ:INTC) at 10.3 and
Nvidia (NASDAQ:NVDA) trading at 22.5 times forward earnings, 抖阴最新版 does not compare well to its direct peers.
Once the chip glut ends, that could become a different story. In her , Su made it clear that 抖阴最新版 will challenge Intel and Nvidia for dominance in the PC, graphics and servers. If recent product releases serve as an indication, Intel and Nvidia will have to take this threat seriously. Moreover, as the demand for chips begins to increase again, 抖阴最新版 should resume its double-digit growth. However, that equity growth will come from sustained earnings increases, not from knee-jerk reactions following an earnings report. For this reason, I recommend approaching this report as an observer rather than as a stakeholder.
Concluding Thoughts on 抖阴最新版 Stock
Investors should look for signs that the chip glut will soon end when the company reports fourth quarter and annual earnings Tuesday. Like its peers, 抖阴最新版 stock fell as declining interest in crypto mining left the semi industry with unexpectedly high supply levels. This weighed on 抖阴最新版 and most chip stocks.
The fourth-quarter earnings report will probably show progress in this area. However, it will likely take more quarters to work off the oversupply. Also, the stagnant profit growth makes 抖阴最新版’s elevated P/E ratio harder to justify.
In many areas, 抖阴最新版’s PC, graphics and server chips lead their peers. Once the oversupply situation ends, profit growth should again make the company a viable investment. However, as long as revenue and profit growth stagnate, 抖阴最新版 stock remains a hold at best.
As of this writing, Will Healy did not hold a position in any of the aforementioned stocks. You can at @HealyWriting.
