Computer processor maker AMD (NASDAQ:AMD) reported results in line with analysts' expectations in Q1 CY2024, with revenue up 2.2% year on year to $5.47 billion. The company expects next quarter's revenue to be around $5.7 billion, in line with analysts' estimates. It made a non-GAAP profit of $0.62 per share, improving from its profit of $0.60 per share in the same quarter last year.

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“We delivered strong first quarter results with our Data Center and Client segments each growing more than 80% year-over-year driven by the ramp of MI300 AI accelerator shipments and the adoption of our Ryzen and EPYC processors,” said AMD Chair and CEO Dr. Lisa Su.

Founded in 1969 by a group of former Fairchild semiconductor executives led by Jerry Sanders, Advanced Micro Devices or AMD (NASDAQ:AMD) is one of the leading designers of computer processors and graphics chips used in PCs and data centers.

Processors and Graphics Chips

The biggest demand drivers for processors (CPUs) and graphics chips at the moment are secular trends related to 5G and Internet of Things, autonomous driving, and high performance computing in the data center space, specifically around AI and machine learning. Like all semiconductor companies, digital chip makers exhibit a degree of cyclicality, driven by supply and demand imbalances and exposure to PC and Smartphone product cycles.

Sales Growth

AMD's revenue growth over the last three years has been very strong, averaging 31.5% annually. But as you can see below, this quarter wasn't particularly strong, with revenue growing from $5.35 billion in the same quarter last year to $5.47 billion. Semiconductors are a cyclical industry, and long-term investors should be prepared for periods of high growth followed by periods of revenue contractions (which can sometimes offer opportune times to buy).

This was a sluggish quarter for the company as its revenue dropped 2.2% year on year, in line with analysts' estimates. This marks 3 straight quarters of growth, implying that AMD is in the middle of its cycle, as a typical upcycle generally lasts 8-10 quarters.

AMD's management team believes its revenue growth will accelerate, guiding to 6.4% year-on-year growth next quarter. Wall Street expects the company to grow its revenue by 20.4% over the next 12 months.

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Product Demand & Outstanding Inventory

Days Inventory Outstanding (DIO) is an important metric for chipmakers, as it reflects a business' capital intensity and the cyclical nature of semiconductor supply and demand. In a tight supply environment, inventories tend to be stable, allowing chipmakers to exert pricing power. Steadily increasing DIO can be a warning sign that demand is weak, and if inventories continue to rise, the company may have to downsize production.

This quarter, AMD's DIO came in at 158, which is 54 days above its five-year average, suggesting that the company's inventory has grown to higher levels than we've seen in the past.

Key Takeaways from AMD's Q1 Results

It was good to see AMD slightly beat analysts' EPS expectations this quarter. We were also glad its gross margin improved. The company's performance this quarter was driven by 80%+ year-on-year growth in its data center and client segments. Growth in the data center business was driven by its Instinct GPUs and EPYC CPUs while growth in the client division was propelled by Ryzen Series processor sales.

On the other hand, its inventory levels materially increased, and revenues in its gaming and embedded segments fell by more than 45% year on year (the market is less focused on these divisions, however, as AI solutions dominate AMD's story). Next quarter's revenue guidance was in line with Wall Street's projections.

Overall, this was a mixed quarter for AMD. The company is down 2.7% on the results and currently trades at $154.28 per share.

So should you invest in AMD right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.