Advanced Micro Devices, Inc. (NASDAQ: AMD) has gotten a lot of attention in the market as of late, and for good reason. On a year to date basis, the stock has done incredibly well, rising from $18.83 per share to $28.95. That’s a gain of more than 53% in a few months.
After digging in, I’ve found several reasons to be excited about AMD. If you’re not already investing in this stock, it’s one that should definitely be considered. In fact, in my view, this is one of the strongest tech investment plays of 2019 should all go as expected. Let’s dive in:
What Is AMD?
For those of you who haven’t followed Advanced Micro Devices in the past, the company is a developer of high-performance computing and visualization products. These products are designed to solve some of the technology world’s toughest and most interesting problems.
The company’s most important product lines are known as Radeon and Ryzen. These are lines of computer products including graphic processing units, random-access memory (RAM), solid state drives, and more. The products are quickly growing in popularity as you will see below.
Recent Analyst News Increases Interest In AMD
Just last week, AMD stock got a boost when an analyst at Instinet initiated coverage on the stock. The analyst, David Wong is encouraged by several aspects of the company. Most importantly, the analyst pointed to solid positioning in the x86 microprocessor and standalone GPU markets.
Due to its strong positioning, Wong expects taht Advanced Micro Devices will take more than 10% of the x86 datacenter processor market. Moreover, the analysts expects that the company’s products will be used in 15% to 20% of desktops and notebooks and that the company will take a greater than 30% share in the desktop and mobile GPU markets.
In terms of profitability, Wong believes that over the next few years, AMD earnings will rise to $2 per share. As a result of his bullish views, Wong set the rating on AMD to buy with a price target of $33 per share. That price target represents a potential 13.9% upside from the current price of the stock.
Factors That Are Driving Gains In AMD
At the end of the day, the gains in Advanced Micro Devices that we’ve seen so far this year are far from unwarranted. There are several reasons that investors are excited about this stock. Some of the most important include:
- AMD is quickly gaining market share in important areas. The company’s products are being used in more servers, desktops & notebooks, and GPUs. Many expect that the gains in market share controlled by the company will continue as Intel (INTC) faces product headaches.
- Many believe that the company’s datacenter processor market will grow to more than 10% within the next year.
- The company’s new processors are based on the 7 nanometer node and feature up to 64 cores. This is the latest generation in this line of technology, and the company is one of the very few that are driving innovation in the space.
- We’ve seen multiple bits of positive coverage of the company from analysts as of late. It seems as though a shift in analyst opinions is helping to drive the price of AMD stock higher.
- Revenues are growing quickly at Advanced Micro Devices. In fact, over the last 3 years, revenue has grown at a CAGR of 18%. Moreover, revenue of $6.5 billion in 2018 showed a 23% year over year increase.
- Finally, EBITDA margins have grown substantially over the last three years. In fact, in 2015, EBITDA margins were at -2%. By the end of the year 2018, EBITDA margins grew to 12%!
All in all, there are several factors that are fueling the excitement surrounding Advanced Micro Devices.
The Implications Of The x86 Market
When digging into AMD, you’ll hear a lot about the x86 market. All recent analyst notes have mentioned it, including the recent coverage initiation by Instinet. So, what’s the big deal?
Well, the x86 market is a massive one. In fact, at the moment, that market is worth about $18 billion annually. If Advanced Micro Devices’ share of the market does grow to more than 10%, it will generate revenues of $1.8 billion in this segment alone. For a company that generated $6.5 billion in total revenue last year, that would be a meaningful chunk of change!
Considering this, the company is likely to continue on its trend of significant revenue growth. Ultimately, with improving EBITDA margins, this means that we can expect for earnings per share to see increases as well.
The Bottom Line On AMD
The truth of the matter is that AMD is quickly seeing growth in market share in various segments. While the bullish argument on the stock is dependent on a continuation of this growth, the speculation that this will be the case is warranted.
At the moment, the largest competitor to Advanced Micro Devices, which is Intel, is stumbling. This is opening the door for the company to capitalize and take the lion’s share of the market as Intel works to catch up.
All in all, with analyst opinions changing, strong growth in revenue over the past several years and expectations of more of the same to come, and positive media everywhere you look, AMD stock may be the most compelling opportunity in technology today.
What Do You Think?
Where do you think AMD is headed moving forward? Join the discussion in the comments below!