Advanced Micro Devices Inc AMD is set to report second-quarter 2019 results on Jul 30.

Notably, the company surpassed the Zacks Consensus Estimate in two of the the trailing four quarters with an average beat of 6.4%.

Past-Quarter Performance

AMD had delivered first-quarter 2019 non-GAAP earnings of 6 cents per share, which beat the Zacks Consensus Estimate by a penny. However, the figure declined 45.5% year over year and 25% sequentially.

Revenues decreased 22.8% year over year and 10.4% quarter over quarter to $1.27 billion but surpassed the Zacks Consensus Estimate of $1.26 billion.

What to Expect in Q2?

For second-quarter 2019, AMD expects revenues of $1.52 billion (+/-$50 million), suggesting a sequential rise of 19% but decline of 13% year over year.

The Zacks Consensus Estimate for second-quarter earnings is pegged at 8 cents per share, unchanged over the last 30 days. The figure indicates a decline of 42.9% from the year-ago quarter. The Zacks Consensus Estimate for revenues stands at $1.52 billion, suggesting a decline of 13.4% from the year-ago reported figure.

Notably, AMD’s stock has returned 85.6% in the past one year, outperforming the industry’s rally of 25.5%.

Let’s see how things are shaping up prior to this announcement.

Factors at Play

AMD is leaving no stone unturned to strengthen its GPU portfolio with new capabilities in a bid to provide gamers with superior graphic performance and high-quality visual experiences. These initiatives are likely to aid the to-be-reported quarter.

AMD stated that Ryzen and EPYC processors and data center GPU revenues more than doubled on a year-over-year basis in the last reported quarter. The momentum is expected to sustain in the to-be-reported quarter and in the days ahead.

Notably, AMD rolled out Radeon RX 5700 series graphics cards developed on latest RDMA gaming (or Navi) architecture. The three variants of new GPUs include — 50th Anniversary Edition Radeon RX 5700 XT, Radeon RX 5700 XT and RX 5700 priced at $449, $399 and $349, respectively.

Reportedly, AMD slashed prices of RX 5700 XT and RX 5700 by $50 and $30, respectively, to maintain its expanding presence in discrete GPU market against NVIDIA NVDA. We believe AMD’s portfolio strength will help in expanding customer base and boost the company’s top line in the second quarter.

The company also announced the much-awaited third generation AMD Ryzen desktop processor. In a bid to deliver an enhanced gaming experience AMD Ryzen Threadripper 7 3700X offers almost 30% greater multi-threaded performance compared with Intel Core i7-9700K.

With the aid of these products, AMD is foraying into the high-end graphics card market. Consequently, AMD’s revenues will benefit significantly if the latest GPU can cater to the rising demand of users, which in turn will aid the second-quarter results.

Further, the company expects to introduce its first 7-nanometer Navi gaming GPUs in the third quarter. Moreover, AMD is on track to begin Rome production shipments in the second quarter to support a third-quarter launch. Consequently, management believes that it is well poised to improve GPU revenues in the to-be reported-quarter.

During the second quarter, AMD announced that its latest Radeon Pro Vega II GPUs will support Apple’s new Mac Pro.

Moreover, AMD recently entered into strategic partnership with Samsung Electronics Co., Ltd. with an aim to bring immersive graphics experience to smartphone users. Per the terms of the multi-year agreement, AMD’s high performance Radeon graphics solutions and technologies will be integrated with by Samsung’s SoCs to enhance mobile applications.

Amazon’s cloud arm, Amazon Web Services (AWS), announced broader availability of the AMD EPYC processor-based service. AWS launched three new EPYC processor-powered EC2 instance families, including the first T3-series instances, during the to-be-reported quarter.

Moreover, Sony’s upcoming gaming console will be powered by a custom AMD chip based on the “Zen 2” CPU and “Navi” GPU architectures.

We believe that ongoing GPU roll outs, deal wins and product enhancements will bolster incremental adoption of AMD’s offerings, and consequently the top line.

Moreover, strong adoption of EPYC server processors is another catalyst. Notably, increasing adoption of AI techniques and ML tools in industries like gaming, automotive and blockchain are primarily responsible for driving GPU demand. The second-quarter results are likely to benefit from this demand, with the company launching new graphics cards.

However, a highly leveraged balance sheet is likely to weigh on margin expansion at least in the near term.

Further, management expects weakness in graphics channel, negligible blockchain-related GPU revenues and lower semi-custom revenues to hurt year-over-year revenue growth.

What the Zacks Model Unveils

According to the Zacks model, a company with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) has a good chance of beating estimates if it also has a positive Earnings ESP. The Sell-rated stocks (Zacks Rank #4 or 5) are best avoided.

AMD has a Zacks Rank #3 and an Earnings ESP of -9.68%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter

Stocks to Consider

Here are some stocks which you may consider as our model shows that these have the right combination of elements to post an earnings beat in its upcoming release:

Amazon.com, Inc. AMZN has an Earnings ESP of +4.01% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

AmerisourceBergen Corporation ABC has an Earnings ESP of +0.8.2% and a Zacks Rank #3.

This Could Be the Fastest Way to Grow Wealth in 2019

Research indicates one sector is poised to deliver a crop of the best-performing stocks you'll find anywhere in the market. Breaking news in this space frequently creates quick double- and triple-digit profit opportunities.

These companies are changing the world – and owning their stocks could transform your portfolio in 2019 and beyond. Recent trades from this sector have generated +98%, +119% and +164% gains in as little as 1 month.

Click here to see these breakthrough stocks now >>

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
Amazon.com, Inc. (AMZN) : Free Stock Analysis Report
 
Advanced Micro Devices, Inc. (AMD) : Free Stock Analysis Report
 
NVIDIA Corporation (NVDA) : Free Stock Analysis Report
 
AmerisourceBergen Corporation (ABC) : Free Stock Analysis Report
 
To read this article on Zacks.com click here.
 
Zacks Investment Research