3 Big Takeaways From AMD's Stellar Fourth-Quarter Report

Semiconductor designer Advanced Micro Devices (AMD -5.44%) reported fourth-quarter results this Tuesday night. Share prices surged as much as 7.6% higher in Wednesday's trading session as investors embraced AMD's strong results.

I'm here to share a handful of details from AMD's Q4 report that you might have missed. But first, here are the plain financial figures.

AMD's fourth-quarter results by the numbers

Data source: Advanced Micro Devices.

Analysts had been looking for earnings of roughly $0.05 per share on sales near $1.41 billion. AMD beat both of these targets by significant margins, and the analyst consensus had settled above the midpoint of AMD's own guidance for the quarter.

1. Don't call this a cryptocurrency surge

Two quarters ago, AMD's management was happy to pin some of its improving sales on cryptocurrency mining. The company's Radeon graphics processors are popular tools for generating the type of blockchain hashes that digital currencies such as Ethereum and Monero use.

CEO Lisa Su was less interested in that conversation this time.

"Crypto was one driver, but there were numerous other drivers as well," Su said on a conference call with analysts, according to a transcript from Seeking Alpha. "It's hard to estimate just given some of the crypto sort of GPUs are sold through the same channels as our gaming channel. I previously said we thought it was about mid-single digit percentage of our annual revenue, it may be a little bit higher than that, let's call it a point or so, but really a lot of our growth is outside of the blockchain market."

Image source: Getty Images.

2. Finding bottlenecks

So the jury is out on AMD's cryptocurrency metrics. Whether it's crypto miners or games who are driving the current surge in demand for AMD's graphics chips, there's a real shortage of these cards in the retail channel. Su explained that AMD's manufacturing partners are making plenty of Radeon processors, but the high-speed memory chips they need to be paired with are in short supply.

As a shareholder in memory-chip maker Micron Technology (MU -4.61%), I find that music to my ears. Chip shortages are a sign of disciplined production volumes across the memory sector, protecting the average selling prices instead of flooding the market with high volumes of low-margin units. For AMD, these shortages put a lid on the company's graphics processor sales for reasons beyond its own control.

3. Here's what's next

AMD is planning a bunch of important product launches in 2018, including a new generation of Ryzen and Epyc processors, along with a larger family of high-end graphics products under the Radeon Vega banner.

The company also found a new customer in traditional head-to-head rival Intel (INTC -2.40%). The semiconductor giant now sells a processor line that includes a semi-custom Radeon graphics chip from AMD, packaged and sold as part of an integrated Intel processor. This is a small revenue driver for AMD so far, but it's also early days in this unexpected collaboration. I would suggest keeping an eye on AMD's semi-custom partnerships as that business expands to new markets.

Guidance for the first quarter of 2018 points to revenue in the neighborhood of $1.55 billion and non-GAAP earnings near $0.09 per share. These figures include new accounting rules and a different tax framework, mostly working in AMD's favor.

All things considered, I'm encouraged by AMD's booming sales and healthy bottom-line profits. At the same time, soaring share prices have resulted in a stock that trades at 38 times forward earnings and 25 times book value -- nosebleed seats on Wall Street. This year's product introductions can make or break AMD's stock, and I'm still not completely sure that we can count on smooth sailing. Furthermore, I'm convinced that Su is underplaying the importance of cryptocurrency mining. That's volatile stuff, and AMD might be riding a peak right now.

So things are improving here, but I'm staying on the sidelines until further notice.