Stifel: AMD's Q3 Wasn't As Bad As It Seems, But Not As Good As Hoped

Investors made it clear that Advanced Micro Devices, Inc. AMD's third-quarter earnings report and fourth-quarter guidance was weak and disappointing. But that isn't necessarily the case, according to Stifel's Kevin Cassidy, who maintains a Hold rating on AMD's stock with an unchanged $13 price target.

AMD reported a "solid" third-quarter revenue beat and the company's fourth-quarter revenue guidance was also better than expected, Cassidy said in a report. However, the sequential decline in management's fourth-quarter revenue guidance was greater than expected.

The company's earnings report also signaled its "well publicized" new PC, GPU and server CPU product launches are ramping into higher volume shipments and is expected to contribute to a more favorable sales mix. On the other hand, the absence of any notable gross margin expansion has "us questioning how the customers are valuing these new products."

AMD's gross margin rate of 35 percent was short of what investors may expect given a higher revenue profile and more favorable mix of new products.

Bottom line, AMD continues to perform well given its "limited resources" compared to its much larger rivals, including Intel Corporation INTC and NVIDIA Corporation NVDA, the analyst said. However, investors may want to stay on the sidelines with until the company shows concrete signs of the EPYC server CPU expanding margins.

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A Bullish Call On AMD's Q3 Earnings, Guidance

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