Semiconductor ETFs in Play After AMD Reports Decline in Revenue

The semiconductor industry industry is in play after chipmaker AMD reported its second-quarter earnings results on Thursday. While the company was able to be on par with analyst estimates for earnings per share and beat revenue expectations, revenue was actually down 13 percent compared to the same quarter last year.

For the bears, this could put the Direxion Daily Semiconductor Bear 3X ETF (NYSEArca: SOXS) in play. For investors looking to play a sub sequential bounce higher in semicondcutors can take advantage of the Direxion Daily Semiconductor Bull 3X ETF (NYSEArca: SOXL). Other ETFs without the leverage include the VanEck Vectors Semiconductor ETF (NYSEArca: SMH) and the iShares PHLX Semiconductor ETF (NasdaqGM: SOXX).

The chip maker reported earnings of 8 cents per share and revenue of $1.53 billion versus estimates of $1.52 billion, according to Refinitiv data. Despite the decline in revenue, AMD is still the best performing stock on the PHLX Semiconductor index within the past year.

AMD shares are up close to 85% within the last 12 months. Analysts were quick to chime in on their latest second-quarter earnings.

“The sequential and year-over-year increases are expected to be driven by rising EPYC, and Radeon product sales, partially offset by lower than expected semicustom sales,” said Devinder Kumar, AMD chief financial offer, on the call.

“AMD met expectations for the quarter, but took its forecast down based on softness in the game console market,” Pat Moorhead, principal analyst at Moor Insights and Strategy, said in an email.

“I believe this softness is driven by consumers getting excited for the next-generation consoles from Microsoft MSFT, -0.47%  (Scarlett) and Sony (PS5) and delaying purchases,” Moorhead said. “Supporting this, Microsoft and Sony console sales recently were also both down.”

“In the second quarter, we stopped shipping to customers added to the U.S. entities list,” AMD Chief Executive Lisa Su said on the conference call. “While we remain cautious, given the fluidity of the situation, the impact to date has been limited and offset by growing momentum in other parts of our business.”

Microsoft ousted analyst expectations with $1.37 earnings per share as opposed to Wall Street forecasts of $1.21 EPS. Notably, for the first time in three years, Microsoft’s cloud computing segment added more revenue versus the core productivity and business processes segments.

Microsoft’s Intelligent Cloud segment is shored up by products like Azure, SQL Server, Windows Server, Visual Studio, System Center, consulting services and support. In particular, the growth of Azure is at 64 percent on an annualized basis in the fiscal fourth quarter.

As more and more companies are shifting their business processes to cloud computing, the demand for products like Azure will continue to experience growth.

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