Goldman Sachs earnings preview: Bullish on AMD and Arm, bearish on Intel

The US tech stock second-quarter earnings season is about to kick off, with Goldman Sachs releasing a research report on the prospects of the three semiconductor giants in the United States: AMD, ARM, and Intel.

On Monday local time, analysts including Toshiya Hari from Goldman Sachs released a report, maintaining a "buy" rating for AMD and ARM, and a "sell" rating for Intel.

Goldman Sachs expects that AMD's second-quarter performance and guidance are expected to meet market expectations, with the data center business potentially achieving double-digit growth. ARM's second-quarter performance and guidance are both expected to exceed market expectations, with a possible three-year compound annual revenue growth rate of 23%. In contrast, Intel's second-quarter performance and guidance may disappoint Wall Street, as its server CPU market share continues to be squeezed by competitors.

AMD: Strong Expansion in Data Center Business

AMD is set to announce its second-quarter earnings on July 30th.

Wall Street expects AMD to achieve revenue of $5.72 billion in the second quarter, a year-on-year increase of 6.7%, with adjusted earnings per share (EPS) of $0.68, a year-on-year increase of 18.0%. Data center business revenue is expected to skyrocket by 108.6% year-on-year to $2.76 billion, with a sequential increase of 17.9%.

Goldman Sachs believes that AMD's second-quarter performance is expected to meet market expectations, with strong expansion in the GPU business. Specifically:

PC CPU business is expected to grow compared to the previous quarter, with AIPC and enterprise PC refresh cycles partially offsetting soft consumer sector demand.

The sequential growth rate of server CPU business is expected to improve, mainly due to the recovery of spending by major cloud service providers on standard servers and AMD's continued market share gains.

Data center GPU business is expected to achieve strong sequential growth, with a double-digit sequential increase anticipated.

Embedded business revenue will grow sequentially, but growth expectations may be tempered by weakness in industrial, communication infrastructure, and automotive terminal demand.

Gaming business will continue to be soft, mainly due to inventory adjustments in the semi-custom business (game console SoC) and soft demand for gaming GPUs.

Goldman Sachs stated that AMD management will emphasize a positive outlook on AI during the earnings conference call and may raise the full-year data center GPU revenue forecast from the previous $4 billion to $4.5 billion. Second-quarter guidance is expected to remain broadly in line with market expectations.

Based on the above reasons, Goldman Sachs maintains a "buy" rating for AMD with a 12-month target price of $175, a 12.3% premium to Monday's closing price.

ARM: Q2 Performance and Guidance Expected to Exceed Market Expectations

Following AMD's earnings announcement, the market will await ARM's second-quarter earnings report the next dayWall Street expects that ARM will achieve revenue of $905 million in the second quarter, a year-on-year increase of 34.0%. The adjusted EPS is $0.34, a year-on-year increase of 43.2%, and the adjusted net profit is $358 million, a year-on-year increase of 45.7%.

Goldman Sachs predicts that ARM's performance and guidance in the second quarter will both exceed market expectations. Goldman Sachs expects EPS of $0.36 and $0.29 for the second and third quarters, respectively, 6% and 7% higher than market consensus.

The continuous transition of licensing revenue from v8 to v9 architecture is expected to bring higher licensing revenue to ARM. In addition, ARM also benefits from the seasonal recovery of the smartphone terminal market, as well as the expansion of PC and cloud infrastructure businesses.

Goldman Sachs maintains a "buy" rating on ARM, but sets a 12-month target price of $143, 12.6% lower than Monday's closing price. This valuation is based on Goldman Sachs' expected non-GAAP EPS of $2.20 for Q5-Q8, at 65 times.

Goldman Sachs believes that in the fiscal years 2025-2027, ARM's revenue is expected to achieve a compound annual growth rate of 23%, and the non-GAAP EPS (excluding stock rewards) compound annual growth rate will reach 29%, both significantly higher than the industry average.

Intel: Q2 performance and guidance may both fall short, server CPU business not optimistic

Intel will announce its second-quarter financial report on August 1. According to Wall Street's consensus expectations, Intel's second-quarter revenue is expected to be $12.96 billion, a mere 0.09% year-on-year increase, with an estimated adjusted EPS of $0.103, a 20.8% year-on-year decrease.

Compared to AMD and ARM, Goldman Sachs has a more pessimistic view of Intel.

Goldman Sachs expects Intel's second-quarter revenue to basically meet market consensus, but third-quarter revenue and non-GAAP EPS guidance will be slightly below market expectations. Specifically:

Intel's Client Computing Group (CCG) may perform well due to early AIPC shipments and expected enterprise update cycles.

Data Center and AI (DCAI) revenue will increase sequentially, mainly driven by the cyclical recovery of server CPU and early growth in Gaudi accelerator revenue.

External foundry revenue will increase, but mainly due to a low base in the previous period.

Other revenue (including Altera FPGA and Mobileye) will also increase, as these businesses are recovering from severe cyclical declines.

Considering that Intel still faces fierce competition in the server CPU market, Goldman Sachs maintains a "sell" rating on Intel with a 12-month target price of $29, 13.1% lower than Monday's closing priceGoldman Sachs believes that the popularity of AIPC and smartphones may drive the replacement cycle of these devices in the coming years. The server CPU market is expected to experience a cyclical recovery, but Intel's market share will continue to be squeezed by competitors