AMD stock forecast 2025: Q2 is expected to perform strongly

Before the US stock market on July 19, US technology stocks continued their decline last Friday, and AMD's stock price also continued to fall. AMD will announce the results of the second quarter of 2021 on July 27. The market expects this performance to be strong, so this round of decline may be a great opportunity to buy the stock.

financial indicator

Due to the strong market demand for CPU and graphics cards in 2021, AMD’s revenue is expected to exceed the maximum value of the financial guidance. AMD’s C&G business is expected to grow the most because higher-priced AMD Ryzen and high-end AMD Radeon sales continue to increase.

In terms of gross profit margin, the market expects AMD's gross profit margin in Q2 2021 will increase by 47% year-on-year. If the average selling prices of CPUs and GPUs continue to rise in Q2 of 2021, and the ASPs of CPUs and GPUs will increase in Q1 of 2021, the gross profit margin may also increase by 48%.

CPU market share

With a large number of customers adopting AMD’s processors, AMD’s market share continues to grow, compared to Intel’s decline. Since AMD launched the first generation of AMD Ryzen, AMD’s CPU market share has doubled, and it is expected that AMD’s CPU market share in Q2 2021 may also increase.

Free cash flow

AMD's free cash flow is also growing rapidly. Assuming that AMD’s free cash flow in Q2 in 2021 is the same as in Q1 in 2021, the free cash flow in Q2 is US$895 million, an increase of 8% from the previous quarter. However, the increase in EPYC revenue/average selling price indicates that AMD’s cash flow has the potential to continue to grow. Therefore, AMD’s free cash flow is expected to achieve 30% year-on-year growth in 2022.

Based on the strong growth momentum of the company's game business and corporate revenue business, it is expected to achieve a revenue of 17 billion US dollars in 2022 and a 30% year-on-year free cash flow growth. AMD's free cash flow may reach 5.1 billion US dollars.

Valuation

Relative to expected revenue and profit growth, AMD's valuation is at a relatively low level. Thanks to the strong revenue growth of AMD EPYC and AMD Ryzen, AMD’s quarterly revenue has increased by 6-8%, and total revenue is expected to grow by approximately 50% in fiscal 2021. AMD has a market-sales ratio of 6.04 and a price-earnings ratio of 31.7, both of which are far lower than NVIDIA.

Risk

AMD's rise is also accompanied by many risks. As semiconductor companies increase chip production, supply shortages will no longer be a bottleneck. By then, the ASP of CPUs and GPUs may decline, and AMD's profit pressure will increase in this case. If AMD's gross profit margin falls below 40%, its free cash flow will also decline, and its stock price may fall further.

However, it is expected that the "no shortage of cores" will not happen until the end of 2022. Before this, the declining gross profit margin was an early warning signal for semiconductor companies, because it could mean that AMD's stock yields are falling.

to sum up

AMD is expected to announce a better-than-expected 2021 Q2 financial report. Under the premise that ASP remains strong in the quarter, revenue may exceed financial guidance, gross margin may even be higher than 47%, and free cash flow will be slightly less than 900 million US dollars.

By 2022, AMD’s annual free cash flow will reach at least $5 billion. Compared with Nvidia, AMD's valuation will be more impressive.

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