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Advanced Micro Devices, Inc. Earnings Preview: Crypto Demand Continues

AMD earnings amd stock
By Advanced Micro Devices, Inc. (amd.com) [Public domain], via Wikimedia Commons
Advanced Micro Devices, Inc. (NYSE:AMD) is slated to release its next earnings report on Tuesday after closing bell. Consensus pegs AMD earnings at 5 cents per share as adjusted on $1.4 billion in sales.

AMD stock jumped in early trading on Monday following a price target increase from one analyst. AMD and NVIDIA stock have both been rising steadily this month on the back of heightened demand for computing power dedicated to ethereum mining.

AMD earnings preview

AMD stock tends to be very volatile leading up to and immediately after earnings, so it’s likely in for a bumpy ride this week. MKM Partners analyst Ruben Roy boosted his price target for AMD stock from $13 to $14.50 per share but maintained his Neutral rating in a note on Monday. He noted that data points from the PC and server markets were strong during Q4, so the chip maker may be well-positioned to beat estimates and provide strong guidance for the March quarter.

He expects most of the upside in Q4 to come from cryptocurrency-related demand. Crypto-mining has been a key driver of demand for AMD for about the last year or so, and multiple analysts have expressed concern about this time and time again because they don’t believe it is sustainable demand. Ethereum miners in particular have favored AMD chips, although competitor NVIDIA has also benefited from the crypto boom.

AMD earnings expected to continue benefiting from ethereum boom

Morgan Stanley analyst Joseph Moore said in a recent note that mining ethereum has become 200% more profitable just since October. He estimates that miners turn a profit of about $1.76 per GPU they run per day, versus the 56 cents they profited per GPU each day in October. Because AMD’s GPUs are known to be a favorite of ether miners, Moore ran the numbers with the assumption that miners are using and AMD Radeon 580 processor. He also assumed that miners are paying about 70 cents per day on electricity.

According to Moore, crypto miners added 2,200 terahash per minute in computing power dedicated to mining ethereum in the third quarter, bringing the total to 3,672 terahash per minute in Q4. Even assuming that AMD split the market share with NVIDIA and one or two other GPU makers, that translates to big bucks for AMD.

Here’s what analysts have to say about AMD earnings

While Roy is quite optimistic on AMD stock going into the Q4 earnings release, he’s more cautious looking into the medium-to-long term. He sides with the bearish view of the crypto market as he takes a “conservative stance” on it. Although he appreciates AMD’s execution recently, he still wants to see evidence that the chip maker is gaining “meaningful” share in its new product lines.

Mizuho analyst Vijay Rakesh noted recently that pricing in general for GPUs has been rising, driving not only crypto-related demand but also demand for the rest of AMD’s GPU line-up. The key implication of strong pricing goes beyond the tailwind from higher prices and into basic supply and demand. He said that the higher prices indicate that demand for GPUs has been strong while supply has been weaker.

Susquehanna analyst Christopher Rolland offered similar commentary, adding that ethereum mining does play a role in this imbalance. However, he also warned that prices that seem too high could be a red flag in the AMD earnings release because crypto-related sales may be coming at a major markup, causing an artificial increase in sales.

AMD stock jumped by nearly 3% to as high as $13.47 in morning trades on Monday.