Insights

AMD Is a Top Tech Stock Buy After Q1 2022

Even after excluding the recent Xilinx acquisition, Advanced Micro Devices (NASDAQ: AMD) killed it in the first quarter of 2022. The company’s financial results once again exceeded expectations as AMD gobbled up chunks of the massive data center market that’s still dominated by Intel.
Already strong guidance for 2022 was also increased thanks to its data center chips and strong financial results from Xilinx, making this a top tech buy right now.
Image source: Getty Images.

Growing on all fronts from video games to data centers
AMD reported total revenue of $5.89 billion in the quarter, a 71% year-over-year increase. Field programmable gate array (FPGA) leader Xilinx was acquired in February, the largest-ever deal in the semiconductor industry. Backing out the partial-quarter results from Xilinx, AMD sales increased 55% year over year to $5.33 billion.
The chip design company reported strength across all of its segments, including areas serving the PC market and video gaming systems. But growth was especially driven by the enterprise business. New EPYC processors used in data center servers more than doubled compared to a year ago as organizations upgrade their infrastructure to support cloud computing services and next-gen tech like AI.  

AMD Segment

Q1 2022 Revenue

Q1 2021 Revenue

YOY Change

Computing and graphics

$2.80 billion

$2.10 billion

33%

Enterprise, embedded, and semi-custom

$2.53 billion

$1.35 billion

87%

Xilinx (full-quarter results compared to same quarter last year before acquisition)

$1.04 billion

$851 million

22%

Data source: AMD. YOY = year-over-year. 
As for Xilinx’s partial-quarter results, its diverse mix of chips for industrial use immediately illustrated how its addition will help AMD over the long term. For one thing, operating profit of $233 million represented an operating profit margin of nearly 42%. For comparison, AMD overall generated an operating margin of 30% for the quarter. Xilinx will help lift the new AMD’s profit profile as it’s integrated into the business.
CEO Lisa Su also said on the earnings call that Xilinx helps AMD break ground in new industries like automotive technology and 5G mobile networks. Xilinx’s circuitry optimized for AI will be integrated into AMD’s CPU products to improve performance, and the first new designs from this integration will be available next year.  
A massive upgrade to full-year expectations
In light of its strength to kick off 2022, Su and company found it appropriate to increase full-year expectations for revenue growth to about 60%. That compares to 31% growth predicted just a few months ago. However, the outlook provided before didn’t include Xilinx. Assuming Xilinx grows about 20% for the rest of the year like it did in Q1, that would equate to about $3.9 billion in sales contribution for this year (including the $559 million reported in Q1).
Based on the previous outlook for 31% growth, AMD was expecting sales of nearly $20 billion this year. Xilinx’s contribution to that would equate to just under 20% of the total. Thus, AMD excluding Xilinx just provided a big boost to its full-year guidance. Adjusted gross margin for 2022 is now also anticipated to be 54%, compared to 48% in 2021. Suffice to say AMD is also poised to report record profitability this year, and also just approved an additional $8 billion in share repurchases.
After the latest update, AMD stock now trades for 28 times trailing-12-month adjusted earnings per share. Given the upgraded outlook for the year ahead, this top semiconductor stock looks like a steal right now.
Nicholas Rossolillo and his clients have positions in Advanced Micro Devices. The Motley Fool has positions in and recommends Advanced Micro Devices and Intel. The Motley Fool recommends the following options: long January 2023 $57.50 calls on Intel and short January 2023 $57.50 puts on Intel. The Motley Fool has a disclosure policy. –

Even after excluding the recent Xilinx acquisition, Advanced Micro Devices (NASDAQ: AMD) killed it in the first quarter of 2022. The company’s financial results once again exceeded expectations as AMD gobbled up chunks of the massive data center market that’s still dominated by Intel.

Already strong guidance for 2022 was also increased thanks to its data center chips and strong financial results from Xilinx, making this a top tech buy right now.

Image source: Getty Images.

Growing on all fronts from video games to data centers

AMD reported total revenue of $5.89 billion in the quarter, a 71% year-over-year increase. Field programmable gate array (FPGA) leader Xilinx was acquired in February, the largest-ever deal in the semiconductor industry. Backing out the partial-quarter results from Xilinx, AMD sales increased 55% year over year to $5.33 billion.

The chip design company reported strength across all of its segments, including areas serving the PC market and video gaming systems. But growth was especially driven by the enterprise business. New EPYC processors used in data center servers more than doubled compared to a year ago as organizations upgrade their infrastructure to support cloud computing services and next-gen tech like AI.  

AMD Segment

Q1 2022 Revenue

Q1 2021 Revenue

YOY Change

Computing and graphics

$2.80 billion

$2.10 billion

33%

Enterprise, embedded, and semi-custom

$2.53 billion

$1.35 billion

87%

Xilinx (full-quarter results compared to same quarter last year before acquisition)

$1.04 billion

$851 million

22%

Data source: AMD. YOY = year-over-year. 

As for Xilinx’s partial-quarter results, its diverse mix of chips for industrial use immediately illustrated how its addition will help AMD over the long term. For one thing, operating profit of $233 million represented an operating profit margin of nearly 42%. For comparison, AMD overall generated an operating margin of 30% for the quarter. Xilinx will help lift the new AMD’s profit profile as it’s integrated into the business.

CEO Lisa Su also said on the earnings call that Xilinx helps AMD break ground in new industries like automotive technology and 5G mobile networks. Xilinx’s circuitry optimized for AI will be integrated into AMD’s CPU products to improve performance, and the first new designs from this integration will be available next year.  

A massive upgrade to full-year expectations

In light of its strength to kick off 2022, Su and company found it appropriate to increase full-year expectations for revenue growth to about 60%. That compares to 31% growth predicted just a few months ago. However, the outlook provided before didn’t include Xilinx. Assuming Xilinx grows about 20% for the rest of the year like it did in Q1, that would equate to about $3.9 billion in sales contribution for this year (including the $559 million reported in Q1).

Based on the previous outlook for 31% growth, AMD was expecting sales of nearly $20 billion this year. Xilinx’s contribution to that would equate to just under 20% of the total. Thus, AMD excluding Xilinx just provided a big boost to its full-year guidance. Adjusted gross margin for 2022 is now also anticipated to be 54%, compared to 48% in 2021. Suffice to say AMD is also poised to report record profitability this year, and also just approved an additional $8 billion in share repurchases.

After the latest update, AMD stock now trades for 28 times trailing-12-month adjusted earnings per share. Given the upgraded outlook for the year ahead, this top semiconductor stock looks like a steal right now.

Nicholas Rossolillo and his clients have positions in Advanced Micro Devices. The Motley Fool has positions in and recommends Advanced Micro Devices and Intel. The Motley Fool recommends the following options: long January 2023 $57.50 calls on Intel and short January 2023 $57.50 puts on Intel. The Motley Fool has a disclosure policy.

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