Please ensure Javascript is enabled for purposes of website accessibility
Free Article Join Over 1 Million Premium Members And Get More In-Depth Stock Guidance and Research

Why Advanced Micro Devices Climbed 17% in October

By Billy Duberstein - Nov 5, 2019 at 12:05AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Easing tensions between the U.S. and China and a solid earnings report lifted AMD shares last month.

What happened

Shares of Advanced Micro Devices ( AMD -4.43% ) climbed 17% in October, according to data from S&P Global Market Intelligence. The rising chipmaker benefited from the easing of tensions between the United States and China, as well as a solid third-quarter earnings report and bullish guidance for the current quarter.

So what

The first bit of good news for AMD happened on Oct. 11, when the Trump administration announced the broad outlines of a "trade truce" with China and suspended a tariff increase that had been scheduled for Oct. 15.

That helped AMD's stock, because semiconductors have been front and center in the U.S.-China trade war, since China is a big buyer of chips and much of the world's technology supply chain runs through the country. As such, any good news on the trade front is generally a big plus for semiconductor stocks.

Luminous tracks of light signifying electric currents rise fromt he bottom  of the screen to the middle.

Image source: Getty Images.

Then AMD reported third-quarter earnings on Oct. 29. Though AMD's revenue missed expectations and profit was only in line with analyst expectations, AMD still delivered strong sequential growth, confirming that the semiconductor cycle had hit bottom and that the company's recently released 7nm chips were taking hold in the marketplace. The company also guided to strong 48% year-over-year and 17% sequential growth for the upcoming fourth quarter, adding fuel to the fire for AMD's current win streak. AMD guided to 44% gross margin as well, which is at the high end of its forecast.

Now what

AMD is seeing success with the release of its recent 7nm chips, where it has beaten Intel ( INTC -0.51% ) to become the first chipmaker at this leading-edge node. Specifically, AMD noted a 50% increase in OEM laptops using its 7nm Ryzen CPUs, as well as a 50% sequential increase in shipments of its second-generation EPYC chip for the data center. The company also noted that EPYC had won new business from basically all of the major cloud computing vendors.

And though revenue growth was only 8.9% this past quarter, a large portion of AMD's semi-custom business is in video game consoles for both the Sony ( SONY -0.12% ) PlayStation and Microsoft ( MSFT -1.97% ) Xbox, which are at the very end of their life cycles. As such, AMD's semi-custom revenue was down 27%. However, both companies are releasing new consoles next year, which should give a big boost to AMD's semi-custom business in 2020.

In all, AMD's renaissance appears to be on track, as its first-to-market 7nm chips are catching on, and an easing of U.S.-China trade tensions is adding fuel to the fire.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Advanced Micro Devices, Inc. Stock Quote
Advanced Micro Devices, Inc.
AMD
$144.01 (-4.43%) $-6.67
Microsoft Corporation Stock Quote
Microsoft Corporation
MSFT
$323.01 (-1.97%) $-6.48
Intel Corporation Stock Quote
Intel Corporation
INTC
$49.25 (-0.51%) $0.25
Sony Corporation Stock Quote
Sony Corporation
SONY
$120.02 (-0.12%) $0.14

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
624%
 
S&P 500 Returns
140%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 12/06/2021.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Our Most Popular Articles

Premium Investing Services

Invest better with the Motley Fool. Get stock recommendations, portfolio guidance, and more from the Motley Fool's premium services.