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AMD: Ahead of its Peers

Published 10/03/2021, 06:15 AM
Updated 10/03/2021, 10:00 AM
©  Reuters AMD: Ahead of its Peers
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The stock of Advanced Micro Devices (NASDAQ:AMD) has a 30-day price performance of -6.86%. I am still bullish on AMD.

We now have a cheaper buy-in window. AMD’s stock is trading at a 16.36% discount from its 52-week high of $122.49. (See Advanced Micro Devices stock charts on TipRanks) 

AMD is a semiconductor firm that sells consumer and datacenter-grade x86 processors. It also sells Radeon graphics processing units. AMD has a license for and can build custom ARM-based processors.

Market Share Gains Against Intel (NASDAQ:INTC)

Google’s (GOOGL) decision to use more EPYC processors is boosting AMD’s rising market share in server processors. As of Q2 2021, AMD now touts 11.6% revenue share in x86 server processors.

AMD’s server processor market share in Q2 2020 was only 5.8%. It is now 9.5%. This feat is why Intel (INTC) is reducing the price tags of its server processors.

Google (NASDAQ:GOOGL)'s increase use of EPYC processors could boost AMD’s TTM net income of $3.436 billion. A recent leak says AMD is charging $10,000 for its Milan X EPYC server processors.

Google Cloud is the Number 3 player in the $47 billion/quarter cloud infrastructure industry. Rivals of Google Cloud might also buy more AMD EPYC processors. Amazon (NASDAQ:AMZN), the No. 1 cloud infrastructure provider, also rents out AWS Instances that use EPYC processors.

Windows 11 Catalyst

Aside from its server gains, AMD’s Ryzen brand helped it achieve 17.1% market share in x86 desktop processors, and 20% in laptop processors. AMD therefore has a catalyst from Windows 11’s TPM 2.0 hardware security requirement.

There’s a long list of Ryzen, Threadripper, and EPYC processors that are Windows 11-compatible. At the same time, there’s a worsening short supply of processors. Top PC manufacturers like HP, Inc. (NYSE:HPQ), Dell (DELL), and Lenovo (LNVGY (OTC:LNVGY)) will pay top price for any available Windows 11-compliant Ryzen processors.

The profit margin of AMD is already high, at 25.80%. This can grow higher because PC manufacturers are facing a shortage of x86 processors.

Windows 11 will also boost sales of Radeon RX integrated and discrete graphics accelerator cards. Gamers who are forced to buy new PCs because of Windows 11 will also probably consider buying a new PC that already has a new GPU pre-installed.

Additionally, Nvidia (NASDAQ:NVDA) is still not producing enough of its GeForce GTX discrete GPUs. At the same time, no news article report that AMD cannot produce enough Radeon GPUs.

AMD: Cheaper Valuation Ratios

AMD’s stock is now more affordable than NVDA's. AMD has a TTM P/E valuation of just 36.27.  This is half that of NVDA’s 74.20. Furthermore, NVDA has no x86 processor to sell, just GPUs and ARM-based processors.

(Source: Motek Moyen)

Moreover, AMD’s Piotroski F score is 8, signaling that it is very strong financially and presents excellent value. Nvidia’s Piotroski score is only 5 and Intel's is 6.

Additionally, the total cash position of AMD is $3.79 billion. This is greater than this company’s total debt of $657 million.

Wall Street’s Take 

The consensus among Wall Street analysts is that AMD is a Moderate Buy, based on 11 Buys, 3 Holds, and 1 Sell rating. The average AMD p­­rice target is $116.21, implying 13.43% upside potential.

Conclusion 

The growing market share of AMD on x86 consumer and data center processors makes it an investment that investors will want to consider.

Disclosure: At the time of publication, Motek Moyen did not have a position in any of the securities mentioned in this article.

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