Advanced Micro Up On Rumored Radeon GPU Deal With Intel

Shares of Advanced Micro Devices, Inc. (NASDAQ:AMD) hit a new 52-week high of $9.54 on Tuesday following rumors that the company has inked a licensing agreement with Intel Corporation (NASDAQ:INTC) for its graphics processing units (GPUs). The stock closed the day’s session at $9.45, up 8.87% on healthy volumes of 92.02 million.

As per media sources, Intel is licensing Advanced Micro’s Radeon GPUs with a purpose to use them in its next generation CPUs. In this regard, we note that Intel’s current licensing agreement with NVIDIA Corporation (NASDAQ:NVDA) for its GPUs is scheduled to expire in Mar 2017.

It should be noted that Radeon technology has been gaining traction, which is a positive for the company's top line. Notably, AMD along with Alienware partnered with Fox and New Regency to launch virtual reality (VR) in Assassin's Creed Movie, in which the Radeon technology was used. Moreover, on Oct 14, AMD announced a partnership with online retail giant Alibaba (NYSE:BABA) for the supply of Radeon Pro GPUs for its cloud services.

What this Means for AMD?

As per a Technavio report, the global demand for GPUs is expected to witness moderate growth with shipments of over 67 million units by 2020.

Moreover, as per an IDC report, the performance of integrated GPUs is likely to improve over time, decreasing dependency on discrete GPUs. However, discrete GPUs will still rule the roost in the fields of high performance computing.

In this regard, we note that Advanced Micro has recently inked a three-year partnership with Mentor Graphics (NASDAQ:MENT) , which will enable it to offer more choices to embedded developers in the x86 architecture high-performance computing segment. (Read More: AMD and Mentor Graphics Ink Deal on Embedded Technology)

That said, currently the GPU market is being dominated by two major players – Advanced Micro and NVIDIA with the latter having the lion’s share of revenues. Although the Intel deal is yet to be confirmed, it could prove to be a game changer for Advanced Micro if it materializes. We believe that, it will help Advanced Micro to gain more traction in the GPU space and close in the market share gap with NVIDIA.

Stock Performance Overview

Notably, Advanced Micro’s stock has outperformed the broader Zacks Electronics-Semiconductors industry on a year-to-date basis. While the stock has returned a phenomenal 229.3%, the industry has returned only 40.7%.

The upside momentum in the stock was primarily driven by the introduction of several new Accelerated Processing Units (APUs) and GPUs. Additionally, upcoming products like Zen are expected to drive top-line growth in the long run.

However, Advanced Micro’s increased costs related to product introductions will likely impact the company’s profits this year.

Zacks Rank

At present, Advanced Micro carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank stocks here.

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