AMD Q2 profit example: Chipmaker seizes market share on Intel weakness

Reports Q2 2020 results on Tuesday, July 28 after closing
Revenue forecast: $ 1.85 billion
EPS expectation: $ 0.16

It is perhaps one of the most exciting times for investors in advanced micro devices (NASDAQ :). The Santa Clara, California-based chipmaker sees strong momentum as demand for its products grows. This happens at a time when the path to growth is faltering at one of AMD & # 39; s biggest competitors, Intel (NASDAQ :).

AMD's shares rose on Friday, up 17% after Intel announced it would outsource the manufacturing of chips, after years of delays hampering the next generation of products. AMD stock closed at $ 69.40.

These multiple setbacks faced by the world's largest chip maker have helped rivals, including AMD, overtake performance and gain the largest market share. After Friday's jump, the AMD stock has surged more than 50% this year, with Intel trading 15% lower.

Intel & # 39; s current best technology, known as 10 nanometers in the industry, is due to appear in 2017 and is now only making large volume production. And when Intel said on Thursday that the next iteration – 7 nanometers – would be delayed by a year.

AMD, on the other hand, is benefiting from the continued strong demand for personal computers, data centers and game consoles. AMD is the second largest manufacturer of chips used in graphics video cards.

Array Of New Products

To kick-start the growth cycle, AMD also introduced a wide range of new products last year, targeting its largest competitor, Intel.

With these releases, the chipmaker showed that he was in an excellent position to grab Intel's competitive advantage. It also indicated that it had the clout to win the biggest customers in the cloud computing market – companies that previously had little choice but to rely on Intel's expensive products.

Microsoft & # 39; s Xbox Series X and Sony & # 39; s PlayStation 5 – each will feature a powerful AMD processor. Demand for such products is likely to increase as the holiday season approaches, along with the COVID-19 pandemic forcing people to stay at home.

Although the pandemic complicated the production cycle of AMD after the virus shut down much of the supply chain of personal computers in Q1, the company still expects about 25%.

"While demand indicators in the commercial, education and data center infrastructure markets are strong, we expect consumer demand to weaken in the second half of the year, depending on how general macroeconomic conditions evolve," said Chief Executive Officer Lisa Su about a conference call in April.

AMD said it is targeting a double-digit market share in servers by the middle of this year, after dropping below 1% before introducing new products in 2017. Server computers are the backbone of corporate networks and the gigantic data centers that run the internet.

Bottom Line

AMD stocks look a little expensive after the powerful rally in 2020. To keep this momentum going, the company needs to show that it is leading the game and well positioned to capitalize on Intel's weakness. Tomorrow's earnings report could very well support this bull business.

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