AMD Calls for 2021 50% Revenue Growth After Strong Q1

Advanced Micro Devices AMD reported its sixth consecutive quarter of double-digit revenue growth thanks to broad-based PC, server, and game console strength. Management is confident in the firm’s product pipeline for 2021 and now expects 50% revenue growth for the full year (up from 37%). We believe this guidance should be easily attainable, particularly as Intel deals with manufacturing challenges. Our fair value estimate for narrow-moat AMD is $101 per share on a probability-weighted basis as we await AMD’s acquisition of Xilinx. We assess AMD’s standalone fair value at $91 per share. We assign a 75% probability of AMD’s acquisition of Xilinx closing, and our fair value for the combined entity would be $104 per share.

AMD’s first-quarter sales grew 93% year over year to $3.4 billion. Computing and graphics sales were $2.1 billion, up 46% year over year due to Ryzen processor strength and Radeon GPU growth. Client PC processor ASP was up year over year thanks to a richer mix of both desktop and notebook processor sales. In the enterprise, embedded, and semicustom segment, revenue was $1.3 billion, up 287% year over year, thanks to the ramp of the latest Sony PlayStation and Microsoft Xbox consoles (for which AMD supplies the CPU and GPU) and ongoing EPYC server CPU traction, including the recent launch of AMD’s third generation EPYC processors dubbed Milan. Data center revenue more than doubled year over year thanks to growing cloud and enterprise adoption and now accounts for a high-teens percentage of total sales. Gross margins were up 100 basis points sequentially to 46% thanks to a more favorable product mix.

Management expects second-quarter sales to be at a midpoint of $3.6 billion, which would be up 86% year over year. We expect AMD to benefit from broad-based growth over the rest of 2021, especially in the data center sales. Furthermore, we appreciate the fact that more of AMD’s PC sales are coming from the enterprise markets that tend to be stickier.

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