AMD (Nasdaq: AMD) shares jumped 10% higher following the company's Q4 earnings results which showed the company exceeding expectations and issuing guidance above expectations.
AMD has held up better than many other tech stocks as it's down only 25% from it's all-time highs, set in November. Based on its earnings report, there seems to be no material slowdown in terms of enterprise spending and consumer tech spending which bodes well for semiconductor companies like AMD.
Inside the Numbers
In Q4, AMD reported $0.92 in earnings per share, a 26% increase from last year, beating analysts' expectations of $0.76 per share. Revenue also beat at $4.83 billion vs $4.53 billion, a 49% increase.
The company expects $21.5 billion in sales in 2022, above expectations of $19.3 billion. This would be 31% above 2021's revenue. Another positive is AMD's gross margin increasing to 48%, a 300 basis points increase in an environment where most companies are facing margin compression.
Its computing and graphics segment had 32% growth, reaching $2.6 billion in revenue. Most revenues were due to Ryzen processors and Radeon graphics processor sales and with average selling price increases.
Sales for cloud servers and game consoles increased 75% to $2.2 billion. AMD's chips are found in both the Xbox (NASDAQ: MSFT) and Sony Playstation (NYSE: SONY) and the company has benefitted from the strongest console upgrade cycle in generations.
It also spent $1 billion to secure chip production capacity in 2022 and expects the chip shortage to continue but improve from 2021. The company also repurchased $1.8 billion in shares last year and expects to buy about $2 billion this year.
AMD stock was down 22% year-to-date when markets closed last Tuesday. One concern for AMD is that consumer tech spending could weaken in Q1 and Q2 of 2022 due to strong demand during the pandemic "pulling forward" demand and some drop-off from no stimulus payments and higher spending towards services. Enterprise tech spending should continue to grow at a healthy clip given that companies are aggressively increasing spending on cloud software and infrastructure.
The recent decline in AMD's stock price and the company's growth has resulted in valuations getting increasingly attractive. Currently, forward P/E is at 27 which is a premium to the S&P 500 (NYSE: SPY) but still reasonable considering its 49% revenue growth and 26% EPS growth along with 21% profit margins.