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Despite a slowdown in the global semiconductor industry, California-based chipmaker Advanced Micro Devices (AMD) has been rallying investors and taking a large chunk of the chip market.
Year-to-date, AMD stock is up roughly 34%. Though the company is still down around 27% since last February, it’s performing much better than its rival Intel, which is up roughly 7% year-to-date.
So what gives? What is AMD doing differently, and will we see more growth in 2023? Let’s take a look at two main reasons AMD is exciting investors.
AMD had a strong finish to 2022
The first reason AMD is performing so well is that the company is making more money — and making it from the right sources.
AMD ended 2022 with higher revenue than Wall Street expected — roughly $23.6 billion. This was 44% higher than the year before, when AMD posted revenues of $16.4 billion.
Not only that, but its fourth-quarter adjusted revenues were $5.6 billion, slightly higher than what analysts were expecting ($5.5 billion). Here’s how that revenue broke down by source:
AMD revenue source
Q4 2022 revenue
PCs and laptops
Two things can be concluded from this: AMD is allocating fewer chips to consumer electronics (shown as the negative change for PCs and gaming units) and selling more to data centers and embedded processors (think smartphones, 5G networks, cars, etc.).
That’s huge. For the semiconductor industry as a whole, data centers and embedded processors represent the biggest opportunity for growth. Companies like Amazon and Google need faster semiconductors to power cloud services and AI technology. Car manufacturers need smarter chips for autonomous driving. And 5G networks need them to bolster higher connectivity.
The fact that AMD has already grown revenue in these two segments shows it could be in line for more growth. This also shows that its 2022 acquisition of Xilinx — a major producer of semiconductors for data centers — is paying off.
If AMD were selling fewer chips to PC and gaming companies and fewer chips to data centers, investors would be more bearish on the company. If that sounds familiar, it’s because there is a chip company selling fewer semiconductors overall — AMD’s rival, Intel.
Intel is weakening
The second reason for AMD’s recent surge in value is the weakening of Intel.
Intel, once the Goliath to AMD’s smaller business, released a dismal earnings report for Q4 2022. Revenues shrank 32% in the fourth quarter to $14 billion, while its total revenue for the year ($63.1 billion) was 20% less than the year before.
As a result, Intel has cut the salaries of management by 5% to 25% and has laid off 340 employees — a number likely to increase later this year. This last-ditch effort to plug up a sinking profitability does nothing to alleviate a deeper concern: The company is losing revenue from data centers, while AMD appears to be gaining it.
For data centers, Intel reported revenues of $4.3 billion. While that’s nearly three times more than AMD’s, it’s also 33% less revenue than last year. And even though Intel has released a new chip for processors — the 4th Gen Xeon — it hasn’t caught on quite like those released by AMD.
To be fair, Intel still dominates the chip industry. But while it had roughly 90% of the chip market in 2017, its control has shrunk to about 70% this year. Those numbers have investors bearish on Intel stock, while also bullish on AMD.
AMD: what to look for in 2023
The semiconductor industry had a horrible year in 2022. Only in the recession of 2008 did the industry see more shrinking revenues and loss of market capitalization.
Even though AMD is performing well, investors should still keep the larger industry in mind. Chip companies across the board are struggling to sell off large inventories of PCs and gaming units. On top of that, it’s likely we’ll see a softening of demand from data centers in the first quarter of 2023, with those demands growing stronger as the year marches on.
If you’re holding AMD stock, pay close attention to the company’s new products, especially the Ryzen 7040. This is the first consumer CPU that has a dedicated AI engine — not even Intel has a chip like this. The new chip could have a positive influence on AMD's revenues from data centers, something we might be able to infer from the company's next earnings report (to be released in May).
(Top photo courtesy of AMD)
Neither the author nor editor held positions in the aforementioned investments at the time of publication.