Don’t ask if AMD can take market share from Intel, but how much?

Advanced Micro Devices Inc. has become a greater threat to its larger competitor Intel Corp. as it always has been, and the question now is how much more market share can the smaller company take before the bigger one can take its own ship.

AMD AMD,
+1.03%
is scheduled to report second-quarter results on Tuesday after markets close, but the forecast is likely to outweigh the results. Both Intel INTC,
-5.29%
and Texas Instruments Inc. txn,
+2.17%
offered weaker-than-expected forecasts in their earnings reports, which overshadowed large earnings numbers.

For More: Analyst Responses to Intel’s Earnings and Texas Instruments’ Earnings

Leading the way in AMD’s results is likely to be data center sales, after Intel reported a 20% drop in critical data center sales three months ago, while AMD’s more than doubled. Intel reported a better than feared 9% drop on Thursday, and investors will be looking for clues as to whether Intel was able to do a little bit of taming the competition.

On average, Wall Street expects AMD to report $1.44 billion in enterprise, embedded and semi-custom sales — the segment that includes data center and game console chips — nearly triple what the chipmaker reported a year ago. The only lack of clarity on those numbers is AMD’s insistence not to separate data center sales from game sales.

See also: Intel seems to be feeling AMD’s competitive heat

Currently, AMD is just over half the size of Intel in terms of market valuation — $111.96 billion versus $215.02 billion — while Nvidia Corp. NVDA,
-0.18%
reduces the combined market cap of both to $486.4 billion.

Another Wall Street concern seems to be how many restrictions the TSM from silicon wafer supplier Taiwan Semiconductor Manufacturing Co.
+0.20%
will hinder AMD’s sales of finished products.

“We expect AMD’s July report to be limited by wafer availability,” Raymond James analyst Chris Caso said in a recent note. “While there is potential for upside potential given favorable trends, AMD’s commitments are to support console” [original equipment manufacturers] as well as newly won commercial PC [stock-keeping units] limit AMD’s ability to route more supply to the server.”

Caso said those supply constraints and potential market share gains will help isolate AMD from concerns that PC sales are peaking and likely to slow down soon.

At its latest audit, the company was one step closer to completing its acquisition of Xilinx Inc. XLNX worth $35 billion,
+1.02%,
as VK and EU regulators signed the deal in late June, after approval by shareholders of both companies in April. All that remains is for regulators in China to sign the deal. Additionally, during the quarter, AMD announced its first major share repurchase plan in company history for $4 billion, compared to its patchy $100 million buyback over the years.

Read: The chip crisis continues, but one sector can offer relief

What to expect

Income: Of the 33 analysts surveyed by FactSet, AMD is expected to post adjusted earnings of 54 cents per share, up from 46 cents per share expected at the start of the quarter and 18 cents per share in the same period a year ago. . Estimize, a software platform that crowdsources estimates from hedge fund managers, brokers, buy-side analysts and others, asks for earnings of 59 cents per share.

Gain: AMD forecast second-quarter revenue in April of between $3.5 billion and $3.7 billion, while analysts had forecast average revenue of $3.23 billion at the time. Now, 30 analysts expect revenues of $3.62 billion on average, up from $1.93 billion reported in the same quarter a year ago. Estimize expects sales of $3.72 billion.

Stock movement: While AMD’s earnings and sales have surpassed Wall Street’s estimates in the past four quarterly reports, its shares haven’t risen since a year ago the following day, when the stock rose nearly 13%.

AMD shares rose nearly 20% in the second quarter. The PHLX Semiconductor Index SOX, on the other hand,
+0.63%
won 7.1%, the S&P 500 index SPX,
+1.01%
won 8.2%, and the tech-heavy Nasdaq Composite Index COMP,
+1.04%
up 9.5 percent. The stock is about 7% lower than the all-time high of $97.25, set on Jan. 11.

What analysts say

Like Raymond James’ Caso, Bernstein analyst Stacy Rasgon addressed wafer restrictions.

“While AMD’s stock has stalled a bit amid concerns about potential restrictions, concerns about spikes in PCs, higher spending and a potentially more aggressive Intel, the company’s trajectory and presence remains strong,” Rasgon, who has a market performance review and $95 price target on AMD, wrote.

“While we wait to see if they can make further topline improvements from here, it remains necessary for AMD to continue to capitalize as Intel moves into the transition; we believe it would be an important new signpost to show they can keep the inflection, especially on the server share front (which is now showing an acceleration as Milan takes on Intel’s slowed Ice Lake).

Jefferies analyst Mark Lipacis also expects AMD to gain more market share in those areas.

“Our audits indicate that the 3rd Gen server CPU, Milan, is poised to take material share from Intel in the 2H21, and the 4th Gen server CPU, Genoa, will stand out mainly for its high core count,” said Lipacis.

Cowen analyst Matthew Ramsay said AMD has more than two years to not only capitalize on Intel’s turnaround, but also gain momentum as Nvidia works to bring its new CPU to market.

“Even after raising the 2021 growth forecast of 37% on the earnings call for 1Q21, we are seeing an increase in the numbers due to continued sales momentum in PC chips and an increase in both hyperscale and enterprise server shipments, helped in 4Q/1Q by Intel’s latest Sapphire Rapids slowdown,” Ramsay said. “While the slight Sapphire slowdown isn’t too worrying as initial shipments slide from 4Q21 to 1Q22, we believe it could drive some incremental shipments from AMD to hyperscale customers, and we now predict CPU revenues of data centers Q/Q in 4Q21.”

Of the 38 analysts covering AMD, 22 have a buy or overweight recommendation, 14 a hold recommendation and two a sell recommendation, with an average price target of $106.73.

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