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AMD's Q1 Earnings Preview: Growth Amid Segment Weakness

AMD is set to announce its Q1 2025 earnings, projected to show 30% yo-y revenue growth, with an EPS estimate of 93 cents. Despite strong sales in data center and client segments, weaknesses in embedded and gaming could weigh on performance.

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AI Rating:   7
Earnings and Revenue Growth
AMD's upcoming earnings report for Q1 2025 presents a promising outlook with expected revenues of $7.1 billion, reflecting approximately 30% growth year-over-year. The Zacks Consensus Estimate aligns closely at $7.12 billion, suggesting confidence from analysts in continued growth. The growth in earnings per share (EPS) is marked at 93 cents, indicating a significant 50% increase year-over-year. This anticipated performance is indicative of robust demand across AMD's primary segments, primarily attributed to the success of its EPYC processors and Ryzen chips.

Strength in Data Center Segment
The data center segment's revenues are forecasted to witness a notable increase, estimated at $3.4 billion, showcasing an impressive 47.5% year-over-year growth. This surge can be attributed to ongoing demand for AI-powered applications and data center chips, marking AMD's position as a leading provider in this high-growth sector.

Client Business Growth
Similarly, the client segment is expected to contribute significantly, with revenues estimated at $2.04 billion—a 49.3% increase compared to the previous year. The strong performance is likely supported by strategic collaborations, prominently with Dell Technologies for Ryzen Pro processors.

Weakness in Specific Segments
However, the company foresees declines in the Embedded and Gaming segments, with revenue estimates showing a 0.9% decrease in Embedded and a substantial 38.1% drop in Gaming. These weaknesses could create downward pressure on the overall earnings report, diversifying the anticipated positive results from the data center and client segments.

Market Performance
A concerning factor is AMD's stock performance, which has seen a year-to-date decline of 17.9%, underperforming the broader technology sector. This lack of confidence could influence investor sentiment negatively going into the earnings release.

Valuation Concerns
AMD’s current valuation score of F reflects a stretched valuation with a forward price/sales ratio of 4.68, much higher than its industry’s average of 2.90. This could deter value-oriented investors from committing to the stock.

In summary, AMD's strong EPS growth and revenue expectations support a positive outlook, especially in the data center and client segments. However, weaknesses in gaming and embedded areas alongside stock underperformance may temp investors' confidence, warranting cautious optimism.
Stocks:  AMD DELL MSFT META