After rallying for almost six months, Advanced Micro Devices (AMD, Financial) failed to meet investors’ expectations in the quarterly earnings report. In the third quarter of 2016, Advanced Micro Devices shared earnings per share of three cents, four cents better than the estimates. On the other hand, the company’s revenue came in at $1.30 billion, surpassing the estimate by $90 million. That figure also represents a surge of 22.6% in revenue. Moreover, this quarter accounts for the third successive quarter in which the company has managed to beat estimates on the earnings as well as revenue front.
Despite the beat, shares of Advanced Micro Devices fell on the back of underwhelming guidance. The stock had rallied consistently over the last few months, hence a pullback was expected despite the seemingly great results.
The company’s robust results are primarily due to the launch of its new graphics processing unit (GPU) architecture, Polaris. Another reason why the company is thriving is due to the efforts of CEO Lisa Su. The robust results clearly represent how the company’s new graphics cards are performing in the GPU market.
The company detailed that its discrete GPU revenue as well as unit shipments escalated by double-digit percentages successively. Polaris-based Radeon RX graphics cards now account for over 50% of the revenue generated from GPU.
On the other hand, the company has made some massive strides in the virtual reality market, as RX 480 is the first more affordable card that features VR, priced at just $199. At a comparatively lower price, RX 480 was efficiently designed to handle the most powerful VR headsets such as Vive and Rift.
Time has shown that Advanced Micro Devices’ strategy of placing its primary focus on the mainstream market has begun to pay off. However, this has allowed its foremost rival, NVIDIA (NVDA, Financial), to grab the high-end GPU market. Now the company’s primary priority is to win back a considerable amount of market share.
To win back market share in the high-end graphics cards market, the company is on its way to launch its new high-end graphics architecture, Vega. Despite spending less on the R&D segment, the company successfully managed to deliver efficient Polaris-based graphics cards. Therefore, it is highly likely that the company could also deliver efficient high-end graphics cards based on Vega architecture next year.
Final words
Advanced Micro Devices looks like a great turnaround candidate under the leadership of Lisa Su. Although the stock dipped on third quarter results, I think investors should use this pullback to increase their positions as the company is showing clear signs of improvement, which is why I think it is a buy.
Disclosure: No position.
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