AMD: Earnings in Focus

FAANG Earnings is Through: Is the FAANGover Next?

We made it through FAANG Earnings Week, and saw volatile, market moving reports from the likes of Amazon (AMZN), Apple (AAPL), and Microsoft (MSFT). However, these moves, while significant, need to demonstrate follow-through for more continuation to the upside. Whether or not we will actually get that, depends largely on how the market responds to tickers reporting this week. One of those big, market-moving tickers coming up today is Advanced Micro Devices. This company either is going to send the semiconductors rocketing higher through resistance, and take some other semiconductor stocks along with it, or, it will cause a big ‘whomp whomp,’ move where we end up putting a hole in the hot air balloon that is currently the Nasdaq. Whether or not the FAANGover (read: hangover post-FAANG earnings) comes into play, depends on responses this week.

What is interesting is how sentiment this season has so deeply impacted the reactions, and post-earnings moves, and this is an impact that will continue to be felt.

The Flavor of the Season

Every earnings season has a ‘flavor of the season.’ So far it’s been this – expectations and sentiment were so weak due to a very long list of headwinds (strong dollar, record high inflation, ongoing war in Russia/Ukraine, high fuel prices, chip shortage, transportation issues, etc) that had me going into earnings season bearish based on the idea that companies across sectors and industry groups would miss EPS and revenue numbers and additionally lower forward guidance. While we are seeing executives note slowing growth, decreasing margins, and shaky forward guidance, the response from investors has been significantly more positive than is logically expected. This varies significantly from the flavor last season, in which we saw companies getting trashed left and right for misses, lowered guidance, and any mention of softening conditions. 

Logically, this quarter, it would make sense for companies to fade on missed reports with the long list of economic issues abound, but in all actuality, what we are seeing is that due to expectations being so negative and the market being so short, companies reporting less than horrific is being taken by the market as an opportunity to buy. So, we are in a very rare and unique situation in which the macroeconomic climate is getting hit on all sides, yet the technical charts are substantially improving due to peak bearishness and a max pain point of negative sentiment being reached. 

The market has been significantly more forgiving (as it should be) to companies like Microsoft and Amazon that have noted historically unusual misses but it has trashed those with no real prospect of long-term recovery due to continually poor fundamentals (SNAP, TDOC). 

Yet, at the same time, clients ask me every day, “Is it a good time to buy Snapchat?”. It seems as though market participants are looking (hoping for) a 2020-style rally and have this idea that buying ‘cheap’ stocks is a great plan, but in my opinion, buys should be limited to only companies that meet the following criteria: Companies that have long-term, solid histories of beats, diverse product segments, overall growth that is merely slowly versus reversing, recently increasing dividends and long-term consumer loyalty as leaders in their field.  

Companies like market-moving companies like Advanced Micro Devices, which will report earnings today after the close.

Check out AMD in the Hot Zone Below:

There are a few key points here that I’d like to point out. First of all, do you see how the stock actually managed to have sizeable gaps higher the last two quarters, despite the semiconductor shortage, the bear market, and despite the destruction of technology stocks? That’s because this is a company that holds significant long-term prospects and solid underlying fundamentals, that overall can help it hold its own throughout the current economic conditions. It’s just how well it’s holding its own that we will see for sure when they release their earnings report. They have also beat earnings the last 7 quarters in a row. Additionally, they launched a fantastic recovery from the 2022 lows and have rallied nicely going into earnings. This right here demonstrates some bullish anticipation of the report.

While I like to look at this through an earnings lens, I also own long-term shares. It was actually the first company we invested in for our 8-year-old when we opened up his investment account, and so far it’s my best percentage gainer to date.

Why? Well, largely because my husband turned me on to the inner workings of their technology before I fully understood the technology behind what they have been creating.

My husband has big a big fan of AMD for some time, and fun fact, he actually bought our first house in part with AMD shares he originally paid $12 a share for. He’s still holding and buying more. Being the technology expert that he is, I always love to get his take on this company, as he can understand the underworkings of technologically advanced companies in a bit more depth than I can.

Here’s what he told me when I asked him about his latest take on AMD, and how he felt about the continued potential of the long-term opportunity in the company.

Darrell’s Long-Term AMD Take:

AMD has been positioning themselves very strongly in B2B (quick list of companies I can find that have announced they use AMD: FB, AAPL, AMZN, TWTR, GOOGL, MSFT, TSLA, ORCL, HPE, CSCO, DELL, IBM, BABA). There are lists of them in the slides AMD releases from their earnings presentations, archived here

I only see the demand for all sorts of autonomous and AI workloads exponentially growing in the future, and AMD is already so far ahead of their possible competitors both in the maturity of their tech and the business deals they already have inked and produced.

NVDA has equal, or slightly better GPU tech to be honest, and the risk is there for them to pivot into the B2B strongly, but they purposely moved out of that space (embedded GPU) and went straight to the best discrete chips they could make (which, again are admittedly better than AMD standalone). NVDA basically abandoned embedding their stuff with other chips or partners in order to make the best GPUs for crypto/data centers.

INTC is still the gold standard for retail/desktop/enterprise workloads, and their tech is slightly better at some tasks. They never tried to get away from b2b like NVDA, however, their offerings (integrated graphics and atmos x86 architecture chips) kinda sucked, were expensive, and were way more costly in performance/watt versus companies like Qualcomm and Apple (think phone processors, they use ARM architecture, not x86 like INTC/AMD desktop/mobile chips).

NVDA and INTC will certainly still grow with the strong AI currents propelling the entire industry (there will be no lack of demand for processing power in cloud-based workloads they can fill), but AMD is uniquely positioned to take advantage of Autonomous/AI workloads that need to be processed immediately on-premise (e.g. When milliseconds matter, like your TSLA FSD driving for you and figuring out if it needs to stop for a child in the road: It can’t go to the cloud, process the data, then get it back over a cell signal with enough time to hit the brakes, it has to process that itself in the car’s computer).

I happen to know AMD very well and am still in wonder about the amazing strategic choices Lisa Su has made and continues to make. I won’t be betting against them anytime soon :slightly_smiling_face:

So, there you have it. The short-term, earnings take, via the Earnings Hot Zone, plus the take of somebody who builds computers and all kinds of technological products and loves to use AMD products. I haven’t decided how (or if) I’ll trade this one yet, as it’s rallied so hard going into the report, that it makes it challenging to buy at these levels. However, I’ll definitely continue investing in AMD. Either way, I’ll let my Stacked Profits Mastery members know where I stand going into the market close, and I’ll discuss my post-earnings take on AMD tomorrow first thing at the opening bell in the Free Trading Room. 

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