Company name: Advanced Micro Devices, Inc.
Current Price: $76.1
Target Price: $88.6
Yield potential: 16.4%
AMD company was founded in 1969, today it is one of the world’s leading producers of integrated circuit electronics. Company’s product range includes the following products: central processing units, graphic processors and adaptors, motherboards, RAMs, SSDs. AMD also deals with the development and production of spare parts for servers.
What is the idea?
The idea is to capitalize on shares that may show the growth in their price thanks to company’s good results presented in the report for Q2 2020 and optimistic forecasts of company’s management for Q3 and the whole 2020.
Buy AMD shares>>
Why do we like AMD?
Reason 1. The results for Q2 2020 exceeded all market’s expectations
Earnings for Q2 were $1.93Bn, which is $70M higher than the initial market expectations. Quarterly earnings increased 26% YoY due to the increased demand for Ryzen processors. The new Ryzen 4000 series notebook processors have been well received by the market, growing faster than any comparable product in the whole company's history. In general, “Computers and Graphics” market segment increased by 45% YoY. The company notes that in the second half of the year, due to the launch of the new PlayStation 5 and Xbox Series X, earnings will grow significantly. The management notes that the Company has reached double-digit values in the server market. EPYC server processors have made a good contribution to the results of the Company.
The global quarantine has been good for AMD, which greatly increased the demand for cloud and server technologies. In Q1 2019 company’s gross profit margin increased from 40.7% to 44.8%. Operating earnings for Q2 were equal to $173M. In 2019 company’s operating earnings increased from 3.9% to 9% thanks to the growth of “Computers and Graphics” segment which is more marginal. Net revenue for Q2 2020 was 13% per share which exceeded market’s expectations by 1%.
Reason 2. Optimistic forecasts of company’s management
One of the biggest successes of the quarter was the start of production of Ryzen 400 series mobile processors. 54 laptop models equipped with this processor have already been introduced to the market. HP and Lenovo intend to start selling first laptops with Ryzen PRO4000 processors together with 30 ultrabooks and gaming laptops. The company did not very well in the graphics segment due to the change of game consolesʼ generation. Quarterly earnings decline is observed year-on-year, and server graphics revenue has decreased as well.
In Q3 company’s management is expecting earnings at $2.55Bn and 44% gross profit margin. Operating expenses are projected at $660M. In general, company’s management is expecting earnings increase by 32% versus their previous forecast at 25%. The previous forecast on gross profit margin at 45% remains the same. The company doesnʼt cancel its plans for the production of next-generation products based on Zen 3 and RDNA in 2020.
Reason 3. Forecasts by Freedom finance analysts
We consider management report and forecasts to be positive. This is especially evident when it comes to the competition with Intel in the processor market. Intel decided to postpone the production of new processors for six months, which gives AMD a significant advantage for further expansion in this segment. The management of AMD doesn’t see any reason for decreasing its own sales in the second half of the year in the server segment, in which Intel notes a spike in Q2. This suggests that with the overall decline in the server market AMD will most likely continue to increase its share in the segment against Intel.
There is a controversy in the graphics segment where there is an equal struggle between AMD, Intel and Nvidia. We expect that PlayStation 5 and Xbox Series X sales will exceed market’s expectations as gaming industry continues its growth this year. In our valuation model, we have updated the financial indicators from the latest report and significantly improved our revenue expectations from both segments. As a result, we got a target price at $88.6 what provides for 16.4% yield potential of AMD shares from the last market price. Our recommendation is “to buy”.
How to buy AMD shares?
This can be done in two ways:
Through Freedom24 trading web platform. Type in “AMD.US” (AMD company ticker at Nasdaq) in “Web terminal” section and select “Advanced Micro Devices” from search results. Then open a security session, in trading operationsʼ window (on the right), select the required number of shares and click the “Place a purchase order” button.
Through Freedom24 app for iPhone. Click the search icon in the top right corner of the “Quotes” window. Type in “AMD.US” (AMD company ticker at Nasdaq) in the search box that appears and select “Advanced Micro Devices” from search results. AMD share will be added to the market watch — click on it and select the “Order” tab from the opened card. Select the required number of shares and click the “Place a purchase order” button.
If you don’t have an account yet, set it up right now — remotely, in 10 minutes. To do this, it is enough to fill out a short questionnaire and go through the process of verification.
Invest in AMD shares and capitalize on the excellent perspectives of the company!
Buy AMD shares>>
*Additional information is available upon request. Investment in securities and other financial instruments always involves risks of capital loss. The Client should make himself aware at his own accord, including to familiarize himself with Risk Disclosure Notice. Opinions and estimates constitute our judgment as of the date of this material and are subject to change without notice. Commissions, fees or other charges can diminish financial returns. Past performance is not indicative of future results. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The opinions and recommendations herein do not take into account individual client circumstances, objectives, or needs and do not constitute an investment advice service. The recipient of this report must make their own independent decisions regarding any securities or financial instruments mentioned herein. Information has been obtained from sources believed to be reliable by Freedom Finance Cyprus Ltd or its affiliates and/or subsidiaries (collectively Freedom Finance). Freedom Finance do not warrant its completeness or accuracy except with respect to any disclosures relative to the Freedom Finance and/or its affiliates and the analyst’s involvement with the issuer that is the subject of the research. All pricing is indicative as of the close of market for the securities discussed, unless otherwise stated.