Advanced Micro Devices CEO Lisa Su has efficiently executed on her multi-year technique to overhaul the chipmaker’s complete product line and create an array of recent, higher-performance PC and graphics processors. But after pulling AMD’s inventory out of the dregs—it was buying and selling underneath $2 a share in early 2016—and proving the corporate may keep in enterprise, Su has since struggled to persuade Wall Street that she will be able to flip the compelling merchandise into compelling revenue positive aspects.
But with AMD’s first quarter report issued on Wednesday, not solely gross sales exceeded expectations, with a 40% leap to $1.65 billion. AMD additionally confirmed a 4 share level enchancment in its gross margin, to 36%, and working earnings of $120 million up from simply $11 million a 12 months in the past. Analyst Patrick Moorhead of Moor Insights & Strategy referred to as it a “blowout” and credited the rising recognition of AMD’s new Ryzen CPU chips.
AMD’s progress promoting its latest chips may lastly sign a turning level, or “product inflection,” famous analyst Stacy Rasgon at Bernstein Research. “For the first time since this product cycle kicked off AMD may have given investors at least some reason to dream,” he wrote.
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AMD’s inventory, which has been on a rollercoaster this 12 months, jumped 14% on Thursday in noon buying and selling to $11.08. That’s nonetheless nicely down from the 10-year excessive of $15.65 hit final July, however 16% greater than the worth simply two weeks in the past.
That’s possible as a result of a part of Su’s wrestle with Wall Street has nothing to do with AMD’s (amd) personal technique, and even the competitors from Intel (intc) and Nvidia (nvda). Instead, a serious concern revolves round simply how a lot shopping for demand for AMD graphics playing cards is coming from digital forex mining operations and the way risky that demand is perhaps as costs of the currencies decline.
Last 12 months, when the costs of varied digital currencies akin to Ethereum skyrocketed, the pc mining exercise that runs on graphics chips like AMD’s new Vega line skyrocketed, too. Now that cryptocurrency costs have retreated considerably—Ethereum’s is lower than half what it was in early January—analysts predict mining activity will wane. Last time that occurred, again in 2014, it flooded the market with used graphics playing cards killing sales at AMD and its rivals.
Su says this time is completely different, at all times a difficult argument to make on Wall Street the place “this time” is nearly by no means completely different. But Su supplied two propositions to again her principle, including that AMD has been in contact with main business forex mining operations to listen to about their plans.
First, not like 2014 when miners all centered on bitcoin, now there are dozens of main cryptocurrencies. Instead of giving up mining altogether and promoting their gear “what we’ve seen is that people who are mining do go from one currency to another depending on what’s happening,” Su stated on a name with analysts Wednesday afternoon. The different issue is that some part-time miners purchase high-end graphics playing cards for a number of makes use of. “We see that there is good demand for, not just blockchain, but for gaming, for the cloud and for those things as well,” Su defined.
Most analysts aren’t certain Su has it proper, however booming gross sales of the varied new merchandise, together with the Epyc chip for servers, may make a decline in crypto-driven gross sales irrelevent. In February, AMD unveiled chips which mix its Ryzen CPU with its high-end Vega graphics processor as an alternative of the same old low performers. And final week, the corporate rolled out its second generation of Ryzen CPUs with higher efficiency for desktop computer systems.
“We anticipate improving demand and selling prices for AMD’s graphics chips, driven by new Radeon products, and are encouraged by penetration for its Ryzen processors,” analyst Angelo Zino of CFRA Research wrote. “While we see lower blockchain revenue ahead (10% of sales) given industry dynamics, we think investors are underestimating share gain potential of its EPYC server.”
AMD’s forecast for a 50% income improve within the second quarter and “mid-20s percent” for all of 2018 integrated a modest decline in graphics chip demand from miners, CFO Devinder Kumar informed analysts. Mining demand accounted for about 10% of such gross sales within the first quarter, he stated.
“There may still be a bit of risk if their estimate of exposure (which at several hundred million dollars feels a little light) is wrong,” writes Bernstein analyst Rasgon.