Advanced Micro Devices (AMD) shares rallied 5.6% to close at $84.56 on June 17.
AMD is a semiconductor company that develops computer processors and related technologies for business and consumer markets. The surging demand for data center chips from data center operators, high-performance computing (HPC) applications, gaming, and VR/AR devices due to the coronavirus crisis, is fueling growth for the stock.
With a market capitalization of $102.7 billion, the chipmaker has gained 56.5% in the past year, but has lost 11.8% over the past six months.
AMD, Google Partnership Drives Growth
On Thursday, Alphabet's subsidiary Google Cloud announced that it had picked AMD's third-generation data center chip to offer enhanced cloud computing services to its customers. Per the deal terms, Google will utilize AMD's EPYC processors to power a new group of Tau virtual machines (VMs) within Google Cloud.
AMD CEO Dr. Lisa Su said, “We designed 3rd Gen AMD EPYC processors to meet the growing demand from cloud and enterprise customers for high-performance, cost-effective solutions with optimal TCO.”
Su further added, “We work closely with Google Cloud and are proud they selected AMD to exclusively power the new Tau VM T2D instance which provides customers with powerful new options to run their most demanding scale-out workloads.”
The news has sparked enthusiasm among investors and has caused the stock price to surge. (See AMD stock chart on TipRanks)
No EC Objection For Xilinx Purchase
Per an article on thestreet.com, the European Commission (EC) has not raised any objection to AMD’s buyout of Xilinx (NASDAQ: XLNX). The news is expected to be one of the major catalysts for the recent increase in the share price.
Last year in October, AMD reached an agreement to buy Xilinx. The deal, which is expected to strengthen AMD’s presence in the data center chip market and increase its overall sales, is expected to close later this year.
Other catalysts might also generate robust growth in the foreseeable future for the company.
FSR Launch Expected to Spur Sales
AMD is set to launch FidelityFX Super Resolution (FSR) and officially reveal the first supported games on June 22nd. The company aims to boost the performance and image quality in supported games with this new technology. However, the company is yet to disclose further details about it.
The developers and publishers have reportedly already been working with AMD on FSR adoption.
AMD’s FSR is expected to compete with NVIDIA's (NVDA) deep learning super sampling (DLSS) image technology, which helps games look better and run smoother.
The release is expected to help AMD gain a larger market share of the GPU market.
However, whether the new technology will help AMD penetrate the market remains to be seen, as NVDA's DLSS technology has already grabbed a fair share of the market.
Strong Industry Projections
Per a report from IDC, the traditional PC market is expected to grow at 18.2%, with shipments totaling 357.4 million this year. This represents a CAGR of 2.5% from 2020 through 2025.
Also, the video gaming industry has been a big pandemic winner, thanks to a surge in engagement from gamers staying indoors. According to a study by Mordor Intelligence, the global gaming market is projected to reach $314.40 billion by 2026, recording a CAGR of 9.64% from 2021 through 2026.
According to a report from MarketsandMarkets, the global data center power market is expected to reach $26.1 billion by 2025, indicating a CAGR of 6.4% during the period 2020 to 2025.
The strong projections in the personal computer, video gaming, and data center markets are anticipated to spur the demand for AMD’s chips.
Analysts’ Views
The Wall Street community is cautiously optimistic about the stock with a Moderate Buy consensus rating based on 9 Buys, 7 Holds, and 1 Sell. The AMD average analyst price target of $106.54 implies 26% upside potential from the current levels.
Following the AMD and Google Cloud news announcement, Rosenblatt Securities analyst Hans Mosesmann reiterated a Buy rating on the stock and a price target of $135. This implies 59.6% upside potential to current levels.
Mosesmann said, “AMD's EPYC 3 is in its early days of volume ramp, and we expect significant share gains in the next several years on superior architectural roadmap and scalability.”
He further added, “We believe AMD deserves a premium P/E multiple on the premise of a CPU/GPU share gain, and dollar content expansion story is multiyear in nature. We see earnings power of over $4.50 in 2022, and over $5.50 in 2023.”
On June 11, Northland Securities analyst Gus Richard reiterated a Buy rating on the stock and a price target of $116.00. This implies 37.2% upside potential to current levels.
Richard commented, “In notebooks, AMD's revenue share is growing faster than its unit share. We expect an increasing mix of corporate notebook revenue to drive client revenue growth in 2H. AMD's server market share accelerated in Q1 and AMD launched its 7nm server chip in Q1 that will likely accelerate share gains in 2H. We believe AMD is getting ample capacity from TSMC, and high-end AMD systems will be the least likely to suffer from component shortages.”
TipRanks Vital Metrics
TipRanks data shows that financial blogger opinions are 87% Bullish on AMD, compared to a sector average of 69%.
TipRanks’ Stock Investors tool shows that investors currently have a Very Positive stance on Advanced Micro Devices, with 3.2% of investors increasing their exposure to AMD stock over the past 30 days.
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