Nvidia, AMD Price Targets as China Trade Update Can Drive Big Gains
The two AI chip leaders are set up well for a potential stock breakout as the U.S. and China look to finalize a deal.
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On Tuesday evening, Advanced Micro Devices AMD reported the firm's first quarter financial results.
For the three-month period ended March 29, AMD posted an adjusted EPS of $0.96 (GAAP EPS: $0.44) on revenue of $7.438 billion. These top- and bottom-line results all beat Wall Street's expectations, while the revenue print was good enough for year-over-year growth of 36%. This was an acceleration in the pace of year-over-year sales growth that has now extended into a fourth straight quarter.
AMD Operations
As revenues increased 36% to $7.438 billion, gross profit increased 46% to $3.736 billion on a gross margin that improved from 47% to 50%. Adjusted gross margin improved from 52% to 54% as adjusted gross profit printed at $3.992 billion (+40%). GAAP operating expenses grew 16% to $2.93 billion, leaving operating income of $806 million (+2,524%) on an operating margin of 11%, up from the year-ago comp of 1%. Once adjusted, operating expenses increased 28% to $2.213 billion, producing an operating income of $1.779 billion (+57%) on an operating margin of 24%, up from 21%.
After accounting for interest, taxes and other income and expenses, GAAP net income grew 476% to $709 million, resulting in a GAAP EPS of 0.44, up from the year-ago comparison of $0.07. After adjustments, net income was up 55% to $1.566 billion, resulting in an adjusted EPS of $0.96, up from the year-ago comp of $0.62.
AMD Segment Performance
- Data Center generated revenue of $3.674 billion (+57%), primarily driven by growth in EPYC CPU and Instinct GPU sales. This produced operating income of $932 million, up 72.3% from the year-ago period.
- Client generated revenue of $2.294 billion (+68%), primarily driven by demand for the latest "Zen 5" Ryzen processor.
- Gaming generated revenue of $647 million (-30%%), primarily due to a decrease in semi-custom sales. Client and Gaming combined produced operating income of $496 million, up 109.3% from the year-ago period.
- Embedded generated revenue of $823 million (-2.7%). This produced operating income of $328 million, down 4.1% from the year-ago period.
AMD Guidance
For the current (second) quarter, AMD is expecting to generate revenue of $7.4 billion, plus or minus $300 million.
This was a beat, as consensus going into Tuesday night was for $7.24 billion. Adjusted gross margin is seen at 43% inclusive of the roughly $800 million in charges the firm is expected to take for inventories and other costs related to the nation's new export rules regarding China. Excluding those charges, adjusted gross margin would be more like 54%.
AMD Stock Fundamentals
For the period reported, AMD generated operating cash flow of $939 million. Out of this number came capex spending of $212 million, leaving free cash flow of $727 million on a FCF margin of 10%. This is up from the year-ago comps of $379 million and 7%. The firm repurchased $749 million worth of common stock during the quarter.
Glancing at the balance sheet, AMD ended the quarter with a cash position of $7.31 billion and inventories of $6.416 billion. That placed current assets at $21.595 billion. Current liabilities add up to $7.703 billion, including short-term debt of $947 million. The firm's current and quick ratios now stand at 2.80 and 1.97, which is very healthy.
Total assets amount to $71.5 million including goodwill and other intangibles of $43.202 billion. At 60% of total assets, this is more than I would like to see, though in AMD's defense, $18.363 billion of those intangibles are acquisition related.
Total liabilities less equity comes to $13.669 billion including long-term debt of $3.217 billion. Cash outweighs debt by a rough seven to four, so this is no problem. All told, this is a very strong balance sheet.
The CEO
CEO Lisa Su commented in the press release:
“We delivered an outstanding start to 2025 as year-over-year growth accelerated for the fourth consecutive quarter driven by strength in our core businesses and expanding data center and AI momentum. Despite the dynamic macro and regulatory environment, our first quarter results and second quarter outlook highlight the strength of our differentiated product portfolio and consistent execution positioning us well for strong growth in 2025.”
Wall Street Adjusts on AMD
Since Tuesday night, I have come across 15 highly-rated (four-plus stars at TipRanks) sell-side analysts that have opined on AMD since these earnings came were released. Among the 15 analysts, we have 10 "buy" or buy-equivalent ratings and five "hold" or hold-equivalent ratings. Two of these "holds" did not set target prices, so we have 13 of those to work with.
The average target price across those 13 analysts is $122 with a high of $140 (Tristan Gerra of Robert W. Baird) and a low of $95 (Stacy Rasgon of Bernstein). Once omitting these two as outliers, the average target price rises to $123.36. The average "buy" target is $127.60, while the average "hold" target is $105.33.
My Conclusions on AMD Stock
The firm is executing at a high level despite challenges regarding cross-border trade, with Chinese clients in particular. The guidance is strong as well.
There is a chance that the expected trade talks late this week and into next will be positive for this stock as well as for industry leader Nvidia's NVDA stock. Even if nothing comes of the talks, there will likely be an algorithmic build up.
AMD is trying to break out from a falling-wedge pattern of bullish reversal, while also trying to retake its own 50-day SMA. This would force portfolio managers to increase overall long-side exposure to the stock.
NVDA is trying to break out from a descending-pitchfork pattern but is also trying to retake its own 50-day SMA.
We don't know how this plays out. We do know that if there is to be a breakout, that both of these stocks are set up well, technically. Both will need to hold and find support at their 50-day SMAs which will be my pivot points.
I did re-initiate long positions in both of these stocks on Tuesday night. For now, my target price for NVDA is $134 and my target price for AMD is $118. As this is risky, there will be a sharp rebuke should trade talks fall flat, and as always, I expect to use my 8% rule as a key part of my risk management process.
At the time of publication, Guilfoyle was long AMD and NVDA equity.
