AMD Q1 preview: Where next for AMD stock?

When will AMD release Q1 2022 earnings?

Advanced Micro Devices is scheduled to release first quarter earnings after US markets close on Tuesday May 3.

AMD Q1 earnings preview

Wall Street forecasts AMD will report a 55% jump in revenue to a new quarterly record of $5.3 billion from the $3.4 billion reported the year before. That is above the company’s guidance range of between $4.9 billion to $5.1 billion.

Some believe it could beat expectations. Bank of America Securities released a research note this week that said it expects AMD to report sales closer to $5.5 billion in the first quarter as it reaps around a $500 million contribution from Xilinx, which AMD took over in an all-stock transaction back in February. AMD has said the acquisition will boost adjusted margins and EPS while boosting free cashflow generation this year.

AMD has said it anticipates that its gross margin will improve to 50.5% in the first quarter from the 50.3% seen in the previous quarter. Its margin has been on the rise over the last couple of years and stood at just 46% a year ago. Tight supplies twinned with strong demand is proving favourable for pricing.

AMD’s core business is supplying chips and graphics cards used in high-end computers used by both consumers and businesses. AMD has continued to grow volumes despite the global supply headwinds but has warned they could remain flat in 2022, although some analysts seen room for growth should it gain traction in other areas outside of its core computer market, such as in the  automotive space that is still in recovery mode, and by releasing new graphics cards to encourage more upgrades. Notably, BofA said AMD will see growth hampered by recent softness in the PC market, but said AMD has limited exposure to this space because it focuses on high-end applications while most of the downside potential is stemming from falling demand for low-end models.

Adjusted EPS is expected to stay flat from the record $0.92 delivered in the previous quarter and rise over 77% from last year.

AMD has said it is targeting $21.5 billion in annual revenue in 2022 but markets believe this could be upgraded considering the consensus currently has a figure of over $24.0 billion pencilled-in. The difference may reflect Xilinx as we could see the company tweak its guidance to reflect its contribution this year. Still, the consensus figures point toward a 45% rise in sales from what was delivered in 2021 and adjusted EPS is expected to grow at a similar rate despite the record figures reported last year.

Things are looking good for AMD in the short-term but things could change for the stock and other chipmakers later this year, which has weighed on confidence and reflected in the steep falls AMD has suffered since the start of 2022. AMD may be benefiting from growing demand and favourable pricing thanks to tight supplies for now, but there are concerns that demand could soften later this year as people cutback on spending amid the cost-of-living crisis just as fresh supply capacity starts to come online across the industry in the second half of this year. This has the potential to reverse the current conditions in the market, result in weaker pricing and a squeeze on profitability. But AMD has remained resilient throughout extremely challenging times over the last couple of years and is confident that it can keep up the momentum this year.

Where next for AMD stock

AMD shares have lost almost half of their value since peaking at fresh all-time highs of over $164 five months ago. Today, the stock trades closer to $88.

Shares have opened strongly this morning to suggest the $84 hit yesterday, marking a 10-month low, could emerge as a new key level of support for shares. If that fails, then we could see the stock sink to the next level of support at below $80 and possibly as low as $72, which acted as the ultimate floor for the stock in the second half of last year.

The RSI remains in bearish territory to suggest the stock could come under further pressure, but it is flirting with oversold status and the fact trading volumes have softened over the last 10 days suggests the current downtrend could be losing momentum and reinforcing the idea it could find higher ground. Keep an eye on the moving averages. The 200-day sma surpassed the 50-day sma late last month just as the stock started to suffer the latest leg of the downtrend and it is now on the cusp of breaching back above the 100-day moving average, which would provide a new bearish signal.

On the upside, AMD shares need to break out of the current downtrend and recapture the 50-day sma at $107, the 200-day sma at $118 and then the 100-day sma at $119 before it can try to move above the peak of the last leg higher at over $125.

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