Bulletin
Investor Alert

StockWatch Archives | Email alerts

June 12, 2021, 1:23 p.m. EDT

AMD’s stock has been left behind, but not for long — here’s why

new
Watchlist Relevance
LEARN MORE

Want to see how this story relates to your watchlist?

Just add items to create a watchlist now:

  • X
    iShares Semiconductor ETF (SOXX)
  • X
    NVIDIA Corp. (NVDA)
  • X
    Advanced Micro Devices Inc. (AMD)

or Cancel Already have a watchlist? Log In

By Michael Brush

Technology as a sector still looks like a buy after a recent rebound, but one chip stock stands out in particular .

While the iShares PHLX Semiconductor ETF /zigman2/quotes/209255350/composite SOXX +1.63% and Nvidia Corp. /zigman2/quotes/200467500/composite NVDA +1.54% have recovered from their May swoons, Advanced Micro Devices Inc. /zigman2/quotes/208144392/composite AMD +7.58% hasn’t yet fully rebounded. This makes the stock look like one to own, even though it is up 517% since I last suggested it in February 2017 , compared with gains of 80% for the S&P 500 /zigman2/quotes/210599714/realtime SPX -0.02% and 140% for Nasdaq Composite Index /zigman2/quotes/210598365/realtime COMP +0.70% .

Let’s take a look at why, and how AMD stacks up against competitors.

Key dynamics

Advanced Micro Devices designs central processing units (CPUs) and graphics processing units (GPUs) used in data center servers, PCs and videogame consoles. That makes it a play on two of the biggest trends in tech right now — migration to the cloud and videogame hardware. Historically, the company lagged Intel Corp. /zigman2/quotes/203649727/composite INTC -0.21% . But it has now surpassed its rival because of innovative chip designs and manufacturing issues at Intel.

Over the past few years, AMD has rolled out highly competitive lines of chips, thanks to the leadership of CEO Lisa Su, who took the helm in 2014, says tech analyst Peter Karazeris at Thrivent. This put AMD back in the game. AMD’s EPYC series of processors for servers has been endorsed by broad usage among the main cloud providers — including Amazon Inc. /zigman2/quotes/210331248/composite AMZN +0.11% , Alphabet Inc. /zigman2/quotes/205453964/composite GOOG -0.30% , Microsoft Corp. /zigman2/quotes/207732364/composite MSFT -0.11% , Oracle Corp. /zigman2/quotes/202180826/composite ORCL -0.71% and Tencent Holdings Ltd /zigman2/quotes/207908563/composite TCEHY +4.81% . AMD’s Radeon GPUs for gaming hardware and its Ryzen line of chips used in PCs and laptops are equally successful.

Besides better chip design, AMD has pulled ahead by drawing on advanced manufacturing capabilities of Taiwan Semiconductor Manufacturing Co. Ltd. /zigman2/quotes/204359850/composite TSM +1.35% , which can pack more punch in chips through the use of smaller, 7 nanometer transistors. Intel is stuck back at 10 nanometers.

Here’s the upshot in all of this: AMD is a solid play on the megatrend of cloud computing and the related data center buildout. It’s a bet on the increasing complexity of artificial intelligence and big data analytics. And its GPU chips give Nvidia a run for the money. That makes AMD a play on the new Xbox and Sony PlayStation console upgrade cycle and the potential release of a new Nintendo Switch later this year. AMD is also now a serious contender in PCs and notebooks.

“Our goal at AMD is to really be the leader in the high-performance computing wave,” says Su.

She’s getting her way, and you can see the success in the numbers. First-quarter sales grew 93% year-over-year and 6% sequentially. AMD guided for 50% sales growth for the year, up from prior guidance of 37% growth.

“We believe this guidance should be easily attainable, particularly as Intel deals with manufacturing challenges,” says Morningstar analyst Abhinav Davuluri.

In CPUs, sales are growing faster than those of the overall industry, which tells us AMD is gaining share from competitors.

“We expect continued share growth through the balance of the year and into 2022,” says Goldman Sachs analyst Toshiya Hari, who has a buy rating and a $106 price target on AMD. The chip company is on Goldman’s “conviction list” of highly favored companies.

Here’s how AMD stacks up against competitors in terms of growth in the most recent quarter, profit margins and valuation:

Cash and cash flow

Big cash positions and solid cash flow are positives for investors because they give companies freedom that comes from reliance on banks for financing. Strong cash positions also support investor-friendly moves, such as buybacks and dividends.

Thanks to all the growth, AMD’s cash position rose sharply last year to $2.3 billion, from $1.5 billion in 2019. AMD doesn’t pay a dividend, but its board recently approved a large $4 billion share repurchase. As the company’s first big return of cash to shareholders, this represents about 4% of AMD’s market capitalization. It also signals the company’s confidence in its business and ability to continue generating solid free cash flow despite rising concerns about intensifying competition, says Deutsche Bank analyst Ross Seymore.

/zigman2/quotes/209255350/composite
US : U.S.: Nasdaq
$ 444.14
+7.14 +1.63%
Volume: 763,235
July 28, 2021 4:00p
loading...
/zigman2/quotes/200467500/composite
US : U.S.: Nasdaq
$ 195.03
+2.95 +1.54%
Volume: 20.22M
July 28, 2021 4:00p
P/E Ratio
92.34
Dividend Yield
0.08%
Market Cap
$478.66 billion
Rev. per Employee
$878,788
loading...
/zigman2/quotes/208144392/composite
US : U.S.: Nasdaq
$ 97.93
+6.90 +7.58%
Volume: 140.56M
July 28, 2021 4:00p
P/E Ratio
34.92
Dividend Yield
N/A
Market Cap
$110.60 billion
Rev. per Employee
$774,841
loading...
/zigman2/quotes/210599714/realtime
US : S&P US
4,400.64
-0.82 -0.02%
Volume: 2.09B
July 28, 2021 4:55p
loading...
/zigman2/quotes/210598365/realtime
US : Nasdaq
14,762.58
+102.01 +0.70%
Volume: 3.80M
July 28, 2021 5:16p
loading...
/zigman2/quotes/203649727/composite
US : U.S.: Nasdaq
$ 53.07
-0.11 -0.21%
Volume: 28.48M
July 28, 2021 4:00p
P/E Ratio
11.80
Dividend Yield
2.62%
Market Cap
$215.75 billion
Rev. per Employee
$704,042
loading...
/zigman2/quotes/210331248/composite
US : U.S.: Nasdaq
$ 3,630.32
+3.93 +0.11%
Volume: 3.00M
July 28, 2021 4:00p
P/E Ratio
69.09
Dividend Yield
N/A
Market Cap
$1828.87 billion
Rev. per Employee
$297,430
loading...
/zigman2/quotes/205453964/composite
US : U.S.: Nasdaq
$ 2,727.63
-8.30 -0.30%
Volume: 2.73M
July 28, 2021 4:00p
P/E Ratio
29.57
Dividend Yield
N/A
Market Cap
$1799.58 billion
Rev. per Employee
$1.35M
loading...
/zigman2/quotes/207732364/composite
US : U.S.: Nasdaq
$ 286.22
-0.32 -0.11%
Volume: 33.57M
July 28, 2021 4:00p
P/E Ratio
35.54
Dividend Yield
0.78%
Market Cap
$2158.10 billion
Rev. per Employee
N/A
loading...
/zigman2/quotes/202180826/composite
US : U.S.: NYSE
$ 87.18
-0.62 -0.71%
Volume: 6.40M
July 28, 2021 4:02p
P/E Ratio
19.06
Dividend Yield
1.47%
Market Cap
$245.14 billion
Rev. per Employee
$306,659
loading...
/zigman2/quotes/207908563/composite
US : U.S.: OTC
$ 61.73
+2.83 +4.81%
Volume: 26.05M
July 28, 2021 3:59p
P/E Ratio
22.54
Dividend Yield
0.29%
Market Cap
$543.81 billion
Rev. per Employee
$1.36M
loading...
/zigman2/quotes/204359850/composite
US : U.S.: NYSE
$ 115.07
+1.53 +1.35%
Volume: 6.82M
July 28, 2021 4:00p
P/E Ratio
31.89
Dividend Yield
1.25%
Market Cap
$536.40 billion
Rev. per Employee
$800,328
loading...
1 2
This Story has 0 Comments
Be the first to comment
More News In
Investing

Story Conversation

Commenting FAQs »

Partner Center

Link to MarketWatch's Slice.