Insights

Why AMD Shares Rose 23% in July

What happened

Advanced Micro Dynamics (NASDAQ: AMD) shares rose by 23.5% in July 2022, according to data from S&P Global Market Intelligence.

The 23.5% gain follows a 25% drop in June. However, July’s rally came from high expectations for the company’s second-quarter earnings report, with news of supply constraints easing and the Chips and Science Act passing on July 28.

So what

Although AMD stock saw significant falls in June on the back of the larger economic climate, investor optimism for the company’s Q2 results was AMD’s gain. Ahead of earnings reports, Wall Street forecasted that AMD would beat 2021’s Q2 revenue by 70%, following Q1 2022 results with a similar increase of 71%, year over year. The projections were confirmed when AMD announced its Q2 2022 earnings on August 2.

Other events last month led to significant single-day increases for AMD. News that the company’s chip supplier Samsung expected a 21% growth in revenue in Q2 2022 suggested that demand for AMD and its competitors’ products may not be slowing as previously feared, making concerns over a reduction in pandemic-level demands inconsequential. AMD will also be launching its new Ryzen processors and Radeon graphics cards later this year, which will test the limits of its production capacity and should increase demand even further as anticipation grows for the upcoming products.

Additionally, the House passed the Chips and Science Act on July 28, which led to stock increases for AMD, Intel (NASDAQ: INTC), and Nvidia (NASDAQ: NVDA). Although the act primarily benefits Intel and not AMD or Nvidia, investors appear to be bullish on government investment in the industry.

Now what

On August 2, AMD released its Q2 2022 earnings report that matched expectations of a 70% increase in revenue YOY.

The horizon looks good for AMD over the next two quarters as the company plans to fully unveil and launch its new Ryzen processors before the end of Q3 2022. The upcoming 7000 series processors will be the biggest central processing unit (CPU) launch for the company since 2016, as they also involve the release of its new AM5 socket. The change in socket is significant as it means every new Ryzen 7000 CPU that AMD sells will need to be accompanied by a motherboard that contains the new socket. Since users who want to upgrade their CPU will also need to upgrade their motherboard, AMD should see a spike in revenue that reflects the generational shift as it profits from the sales of both products. 

Moreover, the debut of the Radeon 7000 series graphics cards is expected before the end of the year, and AMD has promised significant performance gains for the new cards, further growing anticipation. 

Suffice it to say, prospects are favorable for Advanced Micro Devices in the run-up to its new product releases and a return in supply. Of course, macroeconomic factors may still affect the company’s stock, but AMD’s outlook should secure it as a good long-term buy.

Dani Cook has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, Intel, and Nvidia. 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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