Company Name: AMD
Entry Price: $85
Target Price: $120
Projected Yield: 41.20%
Time Line: 3 to 6 months
Position Size: 2%
AMD (AMD.US) is one of the world's largest manufacturers of integrated circuit electronics, which also designs and manufactures server hardware.
The product range includes central processing units, GPU's and adapters, motherboards, RAM, and solid state drives.
What's the Idea?
Capitalize on a stock that may rise with larger market share and the successful acquisition of Xilinx.
Buy AMD Shares >>
Why Trade AMD?
Reason 1: Aggressive Market Expansion
Over the last two years, AMD has been aggressively increasing its CPU market share, being ahead of Intel.
According to a Mercury Research report, AMD won over 6 percentage points from Intel, with the market share increasing to 21.70%. In 2020, AMD strengthened its position across the board, including the market of server, desktop and laptop CPU's.
In particular, AMD brought in more advanced CPU's over the last few years. For instance, Vermeer CPU based on Zen3, which is 7+nm, has recently been announced, while Intel is expected to release a 10nm based CPU for desktop only this year. Same for server CPU's: last year, AMD announced Epyc Rome 7Fx2, which, as the company admits, has the best performance per core of any x86 server chips that exist.
These new chips may be compared with Intel's Xeon, which have similar specs; however, Epyc are ahead in most positions, being second only in terms of heat dissipation. Furthermore, AMD products are much cheaper than those by Intel. With the current tech edge, AMD is expected to further expand its market share and rival Intel's leadership.
Reason 2: Expanding Tech Portfolio through Xilinx Acquisition
In 2020, AMD announced the acquisition of Xilinx for around $35B, each Xilinx share being paid for with a 1.72 multiplier. With this acquisition, AMD is aiming to get a valuable high performance product portfolio belonging to various sectors, such as CPU's, graphics, FPGA, and semi-custom solutions.
This will allow the company not only to improve its current product range, but also to develop other areas with great potential, such as AI and IT infrastructure solutions. The acquisition deal is most likely to complete as late as by the end of 2021. In the longer term, Xilinx acquisition should not only keep AMD's products relevant, but also contribute to the market share expansion.
Reason 3: Financial Performance
Despite the pandemic, 2020 was a quite successful year for AMD, as the earnings increased across the board and came at +45%. Meanwhile, the operating profit margin increased to 17% versus 12% in 2019, and the net profit margin reached 16% versus 11%. At the same time, the EPS reached $1.29, against $0.64 a year before.
With a stable financial position, AMD has $330M in debt obligations and $2.29B in cash. Last year, the operating cash flow was already at $1.07B, which means the company has no liquidity issues whatsoever. With such a great cash amount, AMD has a lot of growing potential.
The management's expectations regarding return rates and financial performance for 2021 are also quite high, with the earnings expected to grow by 37%, and the operating expenses / operating revenue ratio forecast at 26%, compared to 31% in 2020.
Currently, the EV/S, EV/EBITDA, and Forward PE ratios are at 10.4х, 50х, and 33х, respectively. As long as they stay more or less at these numbers, they will be quite in line with the industry average.
Since early this year, some investment companies and banks raised the target price for AMD stock: Barclays put $120, same as Cowen, while Rosenblatt Securities aims at $135, and JPMorgan Chase & Co, at $100.
How to Use the Idea
- Buy AMD stock at $85.
- Allocate no more than 2% of your portfolio for the transaction. To build a balanced portfolio, you can use the recommendations by our analysts.
- Sell the stock when the price reaches $120.
How to Buy AMD?
If you don't have an investment account yet, open it now: this can be done online, in just 10 minutes. All you need to do is fill out a short form and verify your account.
After opening an account, you can buy shares in either of the following ways:
Freedom24 Web Platform: : In the Web Terminal section, type AMD.US (AMD ticker in the NASDAQ) in the search box, and select AMD , Inc in the results. Open a secure session in the trading window on the right, select the number of shares you want to buy, and click Buy.
Freedom24 iPhone or Android App: Go to the Price screen and tab the search icon in the top right corner. In the search dialog that will show up, type AMD.US (AMD ticker in the NASDAQ) and select AMD , Inc in the search results. You will then see the stock in the market watch; tap it and go to the Order tab in the dialog that shows up. Specify the number of shares you want to buy and click Buy.
Buy AMD Shares >>
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