AMD Q2 2020 Earnings Report: $0.18 EPS Beats Expectations Amid Rising Sales and Margins

Advanced Micro Devices (AMD) reported better-than-expected earnings for Q2 2020, with sales and gross margins aligning with analysts' predictions while showcasing notable year-over-year growth.

Key Highlights

• Adjusted EPS reached $0.18, exceeding the $0.16 forecast by analysts.
• Gross margin increased as anticipated, reflecting operational efficiency.
• Revenue growth met expectations, demonstrating resilience amid global economic headwinds.

Q2 2020 Earnings Overview

On July 28, 2020, AMD announced its Q2 earnings, revealing profits slightly above expectations. Unlike many companies experiencing declines, AMD's earnings, margins, and sales improved compared to the previous year. Additionally, AMD raised its full-year revenue guidance, signaling confidence in sustained growth. This positive momentum follows Intel's announcement of delays in launching its 7-nanometer chips until 2022 or 2023, a market segment where AMD already competes successfully.

(Original earnings preview published July 22, 2020)

What Investors Should Watch

AMD has outperformed the broader market during the COVID-19 pandemic, with its stock rebounding over 50% from March lows and nearing record highs. This growth has been driven by robust sales and innovative product launches. As AMD reports its Q2 FY 2020 earnings, investors will assess the company's ability to sustain growth amid a challenging global economy. Analysts project adjusted EPS to double year-over-year, supported by strong yet slowing revenue growth.

Gross profit margin remains a critical metric, indicating AMD's operational efficiency. While analysts expect continued margin improvement, the rate of increase may slow compared to previous quarters. The primary risk lies in potential weakening demand for AMD's processors as economic conditions tighten, which could pressure margins.

AMD's remarkable earnings, revenue, and margin growth have contributed to a 74.9% total return over the past year, significantly outperforming the S&P 500's 8.9% return.

Following its Q1 FY 2020 report on April 28, AMD's shares surged due to a 220% adjusted EPS increase and a 40.4% revenue rise compared to Q1 FY 2019. This marked three consecutive quarters of growth after two quarters of declines.

After a brief decline between late May and June, AMD’s stock regained momentum with a 15% rebound by July 20, reflecting renewed investor confidence ahead of the Q2 earnings announcement.

For Q2 FY 2020, analysts forecast a 103.9% increase in adjusted EPS and a 22.1% rise in revenue year-over-year. Although growth is expected to decelerate compared to Q1, these figures remain strong relative to the previous year's Q2 performance.

Despite the anticipated slowdown, analysts remain optimistic about AMD's prospects, projecting a 64.9% increase in adjusted EPS and 25.5% revenue growth for fiscal 2020—the strongest in five years.

Source: Visible Alpha

Semiconductor chips, while complex, are now commoditized products with value driven by intrinsic qualities rather than brand alone. This places a premium on operational efficiency, measured by gross margin—the percentage of revenue remaining after production costs. Investors use this metric to compare companies’ competitiveness.

AMD has consistently improved its gross margin year-over-year, reporting 45.9% in Q1 FY 2020—up nearly 4.9 percentage points from Q1 FY 2019—thanks to successful Ryzen and EPYC product lines featuring advanced 7-nanometer technology.

Analysts expect a 43.8% gross margin for Q2 2020, the highest for any Q2 in at least four years and the third-highest across the past 14 quarters. This represents a 3.1 percentage point increase year-over-year, though the rate of margin growth is slower than in previous quarters, reflecting a cautious outlook amid economic uncertainty.

The key question remains whether this deceleration is temporary or signals a longer-term trend in AMD's financial performance.

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