Shares of Advanced Micro Devices (AMD) rallied in the past six months. The share price soared by more than an astonishing 90%, knocking the overall market sideways.
This stock will likely continue to post impressive share price performance, despite industrial supply chains headwinds. The company is seen to strengthen its position further in each growing market. Thus, I am bullish on this stock. (See Analysts’ Top Stocks on TipRanks)
Based in Santa Clara, California, this chipmaker is providing its technologies on a global scale and serves various markets.
The company offers micro and embedded processors and motherboard chipsets, in addition to a broad range of graphics processors. Its customers range from manufacturers of personal computers to embedded system applications, including providers of servers, data centers and workstations located around the world.
Several customers are leading members of the Fortune 500.
Q3 EarningsIn the third quarter of 2021, the company reported a strong increase in the shipment of third generation Epyc processors to the data centers. Thus, total revenues and the operating income hit another quarterly record.
Year-over-year, total revenues jumped 54% to $4.31 billion, beating projections by $200 million, while the operating income rose by 111% to $948 million.
The Computing and Graphics segment made up 56% of total revenue, growing 44% year over year, while the Enterprise, Embedded and Semi-Custom segment accounted for the remaining 44%, growing 69%
year-over-year.
Furthermore, the gross margin rose 440 basis points higher, to 48%.
The adjusted EPS increased 78% to $0.73, beating the average consensus by $0.07.
This technology stock is well-positioned across all growing markets. The following wins are worth mentioning.
Facebook's (FB) decision to empower many of its data centers with Epyc processors automatically puts Advanced Micro Devices in a wonderful position. AMD will benefit from the plan of the world's most widely used social media platform to allocate massively to its Metaverse strategy.
For this purpose, Advanced Micro Devices is equipping its Epyc processor with additional memory. Also, Microsoft (MSFT) will use this new version of AMD's chips in an offering associated with its software giant's Azure cloud service.
Before the end of the year, Advanced Micro Devices should complete the annexation of programmable logic chipmaker Xilinx (XLNX) for a total consideration of about $35 billion. Following this, from a supply side, Advanced Micro Devices is on track to serve more than 50% of the data center market in less than two years, many analysts currently think, reinforcing the position of this fierce chipmaker competitor.
Furthermore, the coordinated effort of the U.S. and six non-OPEC countries to reduce energy costs through the release of strategic oil reserves will widen the portion of disposable income that consumers can spend on computers, tablets, mobile phones and several other devices.
The demand for microchips will also be increasingly strong thanks to the electrification of activities that the ecological transition implies, since the world has targeted sustainability. If the U.S. Senate also approves President Joe Biden's $1.75 trillion maxi plan on welfare, education and climate, this could create an extraordinary growth opportunity for the microprocessor market.
Looking Ahead to Q4 and Full-Year Fiscal 2021For the final quarter of 2021, the company projects a revenue of approximately $4.5 billion versus the average consensus of $4.52 billion, and it expects an adjusted gross margin of 49.5%.
For the entire year of 2021, the company guides for a total revenue of $16.1 billion versus analysts' average projection of $16.13 billion.
The adjusted gross margin is expected to hover at 48%.
We will see a 40% year-over-year increase in fourth-quarter revenue and a 65% year-over-year increase in full-year revenue, assuming that the company will be correct with its projections.
Wall Street’s TakeIn the past three months, twenty-two Wall Street analysts have issued a 12-month price target for AMD.
The average Advanced Micro Devices price target is $141.80, implying 8.2% downside potential. The company has a Moderate Buy consensus rating, based on 14 Buys and eight Holds assigned.
SummaryThe stock is poised to benefit from all growing markets. Thus, contrary to the analysts' average target price estimate, I believe the share price will continue to rise.
Disclosure: At the time of publication, Alberto Abaterusso did not have a position in any of the securities mentioned in this article.
Disclaimer: The information contained in this article represents the views and opinion of the writer only, and not the views or opinion of TipRanks or its affiliates Read full disclaimer >
Advanced Micro Devices (AMD), also called AMD, is an innovative American multinational semiconductor corporation that provides computer processors and other technologies for high-performing computing, graphics, gaming, immersive platforms, and data centers.
I am neutral on Advanced Micro Devices as its strong competitive position in its industry, robust growth, and general support from Wall Street analysts are offset by its fairly high valuation multiples. (See Analysts’ Top Stocks on TipRanks)
StrengthsAMD has hundreds of millions of customers, including Fortune 500 businesses and state-of-the-art research facilities. Giants like Google and Microsoft purchase its chips for running their software. The company is focused on building highly innovative products that improve the way people work, live, and play.
It has made record market share gains over the past three years, attributed to the global historic chip shortage driven by the unprecedented demand for electronic products amidst the supply shortage during the pandemic.
Recent ResultsAMD’s third-quarter report showed earnings and revenues that beat analysts’ expectations. The company reported record revenue of $4.31 billion in the third quarter of 2021, up 54% from the previous year. Its adjusted earnings were $0.73 per share versus the expected $0.67, indicating year-over-year growth of 16%.
AMD’s non-GAAP net income for the quarter was $893 million or $0.73 per share, beating expectations of $0.67 a share.
The company has benefited from the surge in electronic product sales as its CPU and graphic chips power PCs, servers, and gaming consoles. Its computing and graphics segments reported revenue of $2.4 billion, indicating an increase of 44% year-over-year.
The company reported $1.9 billion in sales in the Embedded, Enterprise, and Semi-custom segment, which showed 69% growth from the previous year. The increase was attributed to a higher demand of game console manufacturers for Epyc server chips and semi-custom sales.
The company has reported it expects $4.5 billion in revenue in the fourth quarter of 2021. This is higher than the analysts’ expectations of $4.25 billion in the quarter. It also expects 39% annual growth in the fourth quarter of 2021.
Valuation MetricsAMD’s stock looks richly valued at the moment as its forward enterprise value-to-EBITDA ratio is currently 38.1x compared to its five-year average of 30.4x, and its price-to-normalized earnings ratio is 50.4x compared to its three-year average of 42.7x.
While the multiples are high, the growth prospects are expected to remain pretty strong, with EBITDA expected to grow by 17.7% in 2022 after increasing by 114.7% in 2021, and normalized earnings per share expected to grow by 25.6% in 2022 after rising by 105% in 2021.
Wall Street’s TakeTurning to Wall Street, AMD has a Moderate Buy consensus rating, based on 14 Buys and eight Holds assigned in the past three months. The average Advanced Micro Devices price target of $141.80 implies 10.1% downside potential.
Summary and ConclusionAMD is a key player in a high-growth industry and has been reaping the benefits in recent years as its growth has been stellar and its stock price has shot up as a result. Furthermore, growth is expected to remain strong moving forward, and Wall Street analysts are generally bullish on shares as well.
That said, the stock’s valuation looks a bit stretched here as AMD is trading above historical multiples, and the consensus price target implies some downside from here over the next year. As a result, investors might want to wait for a pullback in the share price.
Disclosure: At the time of publication, Samuel Smith did not have a position in any of the securities mentioned in this article.
Disclaimer: The information contained in this article represents the views and opinion of the writer only, and not the views or opinion of TipRanks or its affiliates Read full disclaimer >
Advanced Micro Devices (AMD) is a leading semiconductor company with two main segments.
The Computing and Graphics segment includes desktop and notebook processors and chipsets, discrete and integrated graphics processing units, data center and professional GPUs and development services; and the Enterprise, Embedded, and Semi-Custom segment includes server and embedded processors, semi-custom System-on-Chip products, development services, and technology for game consoles. This technology company was founded in 1969 and is based in California.
Advanced Micro Devices has a very strong balance sheet, robust growth, and delivered a solid Q3 2021 earnings report, but there is one problem that is a key hurdle now for investors, its shares are trading at a large premium. Valuation concerns are the key reason that I am bearish on AMD stock. (See Analysts’ Top Stocks on TipRanks)
Advanced Micro Devices: Latest Business HighlightsSome of the latest key business news include the following.
Advanced Micro Devices won multiple supercomputing installations including Argonne National Laboratory’s new Polaris supercomputer, there has been a partnership with Microsoft (MSFT) to bring powerful computing to users with Windows 11, powered by Ryzen processors and Radeon graphics, plus there has been the launch of new products such as the Radeon RX 6600 XT graphics card built on breakthrough RDNA 2 gaming architecture.
Investors also got information about AMD’s 26th annual Corporate Responsibility Report, which highlighted major accomplishments from the previous year and set new goals through 2025 and 2030.
The technology company reported also that “Growing preference for EPYC™ processors resulted in the number of AMD-powered supercomputers growing 3.5x year-over-year” as “Customers across the industry continue to expand their use of AMD EPYC™ processors and AMD Instinct™ accelerators to power cutting-edge research needed to address some of the world’s biggest challenges in climate, life sciences, medicine, and more.”
Another important announcement made was a partnership with IBM (IBM).
“Our customers have a high demand for computing processing power and the new 3rd Gen AMD EPYC processors provide the high levels of performance and scalability we were looking for,” said Suresh Gopalakrishnan, vice president, IBM Cloud. “Our collaboration with AMD has helped us deliver our highest core counts and bandwidth ever available for IBM Cloud customers, to offer top market performance for today and tomorrow’s demanding workloads.”
Q3 EarningsAdvanced Micro Devices delivered a very strong Q3 2021 earnings report. Strong fundamentals and earnings are key catalysts to support the stock price reaching higher levels, but a lot of caution is suggested.
As AMD mentions on its investor relations webpage it has the “goal to build a best-in-class growth company.”
Key highlights of the Q3 2021 earnings report support this goal at present. Revenue increased 54% year-over-year, gross margin grew more by more than 400 basis points year-over-year to 48%, operating income reported was $948 million, up 111% year-over-year compared to operating income of $449 million for Q3 2020.
Net income was $923 million, up 137% year-over-year, and earnings per share were $0.75, up 134% year-over-year. In Q3, the figures for net income and EPS were $390 million and $0.32, respectively.
Focus on ESGAdvanced Micro Devices reported that its 26th annual Corporate Responsibility Report featured a strong focus on “four key environmental, social and governance (ESG) strategic focus areas that guide the company’s purpose-driven approach to high-performance computing: digital impact, environmental stewardship, supply chain responsibility, and diversity, belonging and inclusion.”
ValuationData from Simply Wall Steet shows that AMD stock is pricey based on its P/E Ratio (47.9x) compared to the U.S. semiconductor industry average (31.3x).
Other key financial metrics suggest that AMD stock is trading at a large premium now. AMD has a PEG Ratio of 1.3x, with a figure under 1.0 considered to be attractive, and its PB Ratio of 25.4x compared to the U.S. semiconductor industry average 4.9x.
Wall Steet’s TakeTurning to Wall Street, Advanced Micro Devices has a Moderate Buy Consensus based on 14 Buys, eight Holds, and zero Sell ratings. The average AMD price target of $141.80 represents a 5.4% downside potential.
Disclosure: At the time of publication, Stavros Georgiadis, CFA did not have a position in any of the securities mentioned in this article.
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