What happened
Shares of Advanced Micro Devices (AMD 4.25%) were up more than 5% at the market open on Wednesday, but had eased back to a gain of just 3.4% as of 2:17 p.m. ET. AMD reported third-quarter results on Tuesday that missed revenue and earnings estimates. However, that underperformance was expected following the preliminary report the company delivered earlier in October.
Management also cut guidance for the fourth quarter, but the shares rallied anyway. With the stock down 57% year to date and trading at a modest valuation, the market is clearly focusing on the stock's attractive valuation and its looming opportunities to gain market share in the data center space.
So what
CEO Lisa Su said that revenue and gross margin were below the company's expectations. Su attributed the weakness to soft PC demand and "substantial inventory reduction" across the supply chain.
Still, revenue growth of 29% year over year is solid in the context of the current challenging market conditions. AMD's growth looks tremendous against the double-digit percentage declines Intel booked in its client computing and data center groups last quarter.
AMD's data center segment looks strong, with revenue up 45%. Sales of gaming chips also looked relatively strong, with revenue up 14% in the quarter. This partially offset the 40% decline in the client computing segment, which was attributable to weaker PC sales.
Now what
While management's fourth-quarter guidance was below the Street's expectations, AMD still expects revenue to grow approximately 14% year over year. Obviously, that was an optimistic enough prediction to convince traders to bid the stock higher.
AMD shares trade at a price-to-earnings ratio of 16.7 based on current estimates for 2022. Investors are clearly pleased that AMD can still grow revenue at double-digit percentage rates in one of the worst environments for semiconductor sales in years. That highlights the value underlying this stock right now, and why AMD still looks like a solid investment.
