Advanced Micro Devices Inc. — and Chief Executive Lisa Su — demonstrated on Tuesday how far they have come in winning credibility on Wall Street, for a company that deservedly lacked that trust for many years.
reported fourth-quarter revenue and a first-quarter outlook that was slightly below expectations Tuesday, thanks mostly to excess inventories of graphics chips. That would typically be a recipe for a big decline for the chip maker’s volatile stock, which has already been hit this week after a revenue warning from rival Nvidia Corp.
However, AMD’s shares surged 9.1% higher in Tuesday’s extended session as investors bought into the company’s full-year 2019 outlook for high single-digit revenue growth, even with a forecast revenue drop of about 24% in the first quarter. Investors are clearly banking on the company’s next generation of chips for PCs and data centers/servers, especially its higher-margin Epyc chips for servers, coming out in the second half of 2019.
Investors would not have put that much faith in AMD previously, when the scrappy half-sibling to Intel Corp.
— which licenses Intel’s x86 technology but competes directly against the chip giant — was continuously promising big gains just around the corner and failing to come through. Su, now into her fourth year as CEO, and her team have garnered this newfound respect by launching competitive products without the execution issues that have plagued the company in the past.
Su won that credibility with AMD’s overall 2018 performance, which produced the most profit and revenue for AMD in seven years while re-entering the server market and making moves to challenge Nvidia in gaming. So, when Su predicted better growth in 2019 than analysts expected — according to FactSet, analysts had envisioned growth of about 6.4% in 2019 — despite a weak first-quarter outlook, Wall Street believes her.
Even so, there may be some risk in being too ebullient about a big second half, especially when a few companies have been talking about a data-center slowdown just as AMD is pushing to get into that market. Last week, Intel said revenue for chips in its data-center business would fall in the low single-digits in the current quarter. And Monday, Nvidia stunned investors by warning that its fourth-quarter revenue would come in about $500 million below expectations, thanks to slower sales of graphics cards in both the gaming and data-center markets.
Those two companies, along with other chip makers, are also looking for a stronger second half of 2019, which gives some credence to AMD’s view. A few analysts asked about the big growth expected in the second half, and Su noted that the second half would be an easier compare, after the past two quarters lacked sales of chips for mining cryptocurrency.
“When we get into the second half of the year, we expect to be fully ramped on the entire 7-nanometer portfolio,” Su said. “And so we would see a heavier weighting in the second half. So we see sequential growth into second quarter, but more heavily weighted into the second half.”
Su and Co. clearly have helped AMD regain some Wall Street cred, but there are a lot of potential economic factors that could shake investor confidence in their forecasts. AMD and many other chip companies are pinpointing their hopes on new products to enable them to rise above macroeconomic issues in the second half.
For years, analysts and investors would not trust AMD to overcome those macro factors and execute properly to live up to its forecast. The gains in AMD stock Tuesday afternoon show it is truly a new era for the company, with a trusted CEO in charge.
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