The Ratings Game: AMD results may have given Wall Street sigh of relief, but they’re still a ‘mixed bag’ because of data-center weakness

by | Feb 1, 2023 | Stock Market

Advanced Micro Devices Inc. may have unleashed a collective sigh of relief on Wall Street with its results, but the data-center weakness that helped trash Intel Corp.’s earnings last week is still showing up as a dip in the first half of AMD’s 2023. Late Tuesday, AMD
reported modest results compared with Wall Street expectations, and while those expectations had been managed a quarter ago with an inventory clearance of PC stock, the company must also account for inventory in its data-center business.

PC inventory clearance promises to wrench about 400 basis points of gross margin from Intel
as the industry deals with the worst shipment declines in recorded history. But it appears as if AMD is not out of the woods yet, as now the inventory focus turns to data-center products that are expected to see light demand in the first half of 2023 from “some of the cloud customers,” according to AMD Chief Executive Lisa Su on the post-report call with analysts. Read: AMD CEO promises to keep taking data-center from Intel even as cloud demand pauses following ‘strong’ 2022 Mizuho analyst Vijay Rakesh, who has buy rating and a $90 price target, said AMD’s data-center outlook is similar to the one he expects for the segment as Oracle Corp.
and Microsoft Corp.
drive cloud demand in the second half of 2023. While Intel closed out its worst year since the dot-com bust, AMD’s Su characterized 2022 as a “strong” year for the company. Su said AMD’s remaining inventory mostly lies in its data-center business, so the second half of 2023 there should be stronger than the first half. Not only did AMD, Intel and Nvidia Corp.
all pour new models of gaming cards into a holiday channel where PC shipments were dropping at their steepest recorded rates and a wave of secondhand gaming cards flooded the markets as unprofitable cryptocurrency-mining operations folded, inventory proved to be an issue in other segments. Cowen analyst Matthew Ramsay, who has an outperform rating, and a $100 price target, called the report a “mixed bag…but in stark contrast to Intel last week.” While the data-center outlook for the first quarter was below consensus and lower than expected gross margins expected, AMD’s confidence in the second-half recovery and share gains rank as positives, Ramsay said. “A weak current macro, no d …

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