The CPU (central processing unit) market was expected to be a big growth driver for Advanced Micro Devices (NASDAQ: AMD) this year thanks to AMD's product development advantage over Intel (NASDAQ: INTC). This is why recent reports of AMD's CPUs outselling Intel's don't come as a surprise.
According to German retailer Mindfactory, AMD has gained market share at Intel's expense — its CPUs outsold Chipzilla's competing offerings for the first three months of 2019. Gamers Nexus, an online video gaming magazine, has compiled affiliate sales data from Amazon and Newegg to capture the increase in AMD's sales.
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Gamers Nexus reports that AMD grabbed 80% of CPU sales for the month of March, after garnering around 50% of February sales and just over 70% of January sales. However, should take all this data with a pinch of salt because Mindfactory and Gamers Nexus' data represents only a small sample of the overall PC-buying population.
But we do have an idea that AMD is rapidly cutting into Intel's market share, and that could give a nice lift to the company's first-quarter earnings due out later this month.
CPU growth will ease some of AMD’s pain
AMD's growth has taken a massive hit in recent quarters thanks to an oversupply in the graphics card market, but strong sales of its Ryzen processors have helped mitigate some of that pain. The company's computing and graphics revenue for the fourth quarter of 2018 increased 8.6% annually despite a massive decline in graphics cards sales.
In fact, AMD's graphics card market share fell close to 10-year lows during the final quarter of 2018 as shipments declined 40% year over year. The chipmaker held just 18.8% of the GPU (graphics processing market) at the end of the quarter, a decrease of 7 percentage points sequentially and nearly 15 percentage points over the prior-year period.
So, had it not been for strong Ryzen sales, AMD's computing and graphics business would have taken a big tumble at the end of last year. And now that Ryzen sales have gained momentum in the first quarter of the current year, the chipmaker could surprise the market with better-than-expected performance.
According to company guidance, AMD's top line is expected to decline nearly 24% year over year in the first quarter of 2019 to $1.26 billion. AMD blames the graphics card oversupply for such a massive top-line crash, but it also expects an increase in Ryzen sales. As such, it won't be surprising to see AMD beat revenue expectations given the impressive momentum its CPU business has enjoyed so far this year.
Is the graphics business about to hit bottom?
Analysts expect AMD's revenue to drop once again in the second quarter, though at a much slower pace of 13% year over year. CEO Lisa Su remarked last year that the GPU oversupply would clear off in a couple of quarters, which means that retailers can be expected to restock inventory in the near future.
Also, it is rumored that AMD will launch its next-generation Navi GPUs during the third quarter. That could give its GPU business a nice shot in the arm.
As such, there's a good chance of AMD's graphics cards business hitting a bottom soon, and the upcoming earnings report should provide confirmation of the same. Meanwhile, a strong performance from Ryzen will be another catalyst for the stock going into the earnings report.
In the end, don't be surprised if AMD's report comes out with flying colors later this month. That should be enough to help sustain the impressive rally it has enjoyed so far this year.
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