AMD Stock Forecast and Analysis: Better Buy than Nvidia?

Investing
Updated: 21st Aug 2021
Written by Sean Graytok
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Investing
August 21, 2021
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Companies like Facebook (FB), Tesla (TSLA), and Google (GOOG) are creating technologies that will fundamentally change our society — and their stocks reflect that.

But how about the companies that enable Facebook, Tesla, and Google to create the things they create?

This brings us to one of the most important technology companies in the world: Advanced Micro Devices.

What is AMD?

Advanced Micro Devices (AMD) is an American semiconductor company that primarily develops computer processors.

These processors enable high-performance computing, in addition to graphic and visualization technologies, which are the “building blocks” for gaming, immersive platforms (metaverse?), and data centers.

AMD was founded in 1969 but has experienced significant growth thanks to digitization trends in the last few years.

AMD Stock Investment Potential

AMD’s products are the backbone of high-performance computing, technology that’s in high demand in every sector of the economy.

AMD estimates its total addressable market at $79 billion across the Data Center, PC, and Gaming markets.

#1. AMD and the $35 billion Data Center Opportunity

Data centers rely on AMD CPUs, GPUs, and software to deliver a host of services, such as:

AMD’s suite of processors, known as “EPYC,” are the world’s highest performance server processors.

The 3rd generation EPYC processor delivers up to 2x better performance in HPC, cloud, and enterprise workloads compared to the competition.

AMD is expanding deployments with leading cloud providers like Amazon (AMZN), Microsoft (MSFT), Google (GOOG), and Oracle (ORCL).

These cloud computing stocks are some of the most promising operations in the world, and AMD has embedded itself in its continued growth.

‘Virtualization’ is another technology that’s gotten everyone’s attention — thanks to Mark Zuckerberg and Facebook.

Zuckerberg recently said Facebook’s long-term vision is to build a ‘metaverse,” which essentially is an integrated virtual online environment where people live, work, and play.

Now, every tech company must have a metaverse initiative or get left behind (joking).

These virtual worlds must be completely immersive for the concept to work, which will require massive amounts of HPC, graphics, and visualization technologies — the core of AMD’s business.

#2. AMD Taking PCs Market Share from Intel

AMD’s primary source of revenue is CPU design for consumer and commercial desktops, notebooks, and workstations. AMD estimates this market opportunity at $32 billion.

In 2017, AMD launched its Ryzen series of processors and began to eat away at Intel’s CPU market share.

Today, just four years later, AMD controls 44.1% of the CPU market.

Intel has the rest of the space, but the ‘flippening’ is inevitable. AMD makes better processors than Intel, and the clients know.

In 2022, AMD plans to release its Zen 4 CPU. These chips have even smaller process nodes than that of the previous model, shrinking from 7-nanometers to 5-nanometers.

Transistors on a smaller process node are closer together, which results in increased computing performance and less power consumption.

Intel just started rolling out its 10-nanometer chips and has delayed 7-nanometer production until 2023.

#3. GPUs, Gaming, and Tesla

AMD’s third business segment focuses on GPUs designed for PCs, consoles, and mobile. It values this vertical at $12 billion.

AMD’s Radeon GPUs are pushing the gaming industry forward with ray tracing technology and advanced software.

We believe AMD’s proximity to the gaming industry gives it an edge in other technology sectors.

Historically, the gaming industry has been ahead of the market on the innovation curve: freemium pricing, play-to-earn, and most recently identifying the demand for virtual goods.

In addition to this innovation advantage, the gaming industry itself continues to grow.

It was valued at $173.70 billion in 2020 and is expected to reach $314.40 billion by 2026 — a predicted CAGR of 9.64%. The shift to cloud gaming will only accelerate this trajectory.

AMD’s GPUs are used for more than just gaming. The company just announced Tesla is using AMD Ryzen Embedded Processors and AMD RDNA 2 based GPUs to power the infotainment system in the new Model S and Model X vehicles.

With a market cap just eclipsing $100 billion, AMD seems to have its hands in everything.

AMD Stock Moat

AMD has better technology than Intel. Sometimes, it’s just that simple. CPU market? Check.

In the GPU space, we believe that AMD and Nvidia will not only successfully coexist but benefit from each other.

This market is rapidly expanding, and there’s plenty of room for two at the table. Their competition will pull forward innovation and expand the market by orders of magnitude.

A rising tide that lifts all boats. Or two boats?

We expect shares of AMD and Nvidia to appreciate in tandem as more of the physical world shifts onto chips in a data center.

AMD Stock Analysis

Shares of AMD rose as much as 29% in the week following its Q2 earnings call. Here’s why:

  • Earnings: $0.58 per share, up 29% from the previous quarter and 346% YoY
  • Revenue: $3.85 billion, up 12% from the previous quarter and 99% YoY

What a quarter for AMD — revenue and operating margin doubled and profitability more than tripled year-over-year.

“We are growing significantly faster than the market with strong demand across all of our businesses,” said AMD president and CEO Lisa Su.

She expects AMD’s 2021 annual revenue to grow by approximately 60 percent year-over-year.

The company credits quarterly revenue growth to the Computing and Graphics segment and Embedded and Semi-custom segment.

AMD’s Top Competitors

People generally think of three companies when it comes to chips — TSMC, Nvidia, and AMD — but there are other heavyweights in this space. Here are AMD’s top competitors:

  • Taiwan Semiconductor Manufacturing Co (TSM)
  • Nvidia (NVDA)
  • ASML Holdings (ASML)
  • Qualcomm (QQOM)
  • Intel (INTC)
  • Applied Materials (AMAT)
  • Broadcom (AVGO)
  • Texas Instruments (TXN)

From the company’s website, ASML is “the most important tech company you’ve never heard of.” That just about sums it up.

ASML was founded in 1984 and has more than 60 locations spread across 16 countries.

The company provides chipmakers with hardware and software services to mass produce patterns on silicon through a process called “lithography.”

ASML does not make chips. It designs and manufactures the lithography machines that are required for chip manufacturing. Intel is a customer of ASML.

The purpose of this section is to reveal the complex relationships in the semiconductor industry.

For example, TSMC makes chips for Nvidia and AMD but relies on ASML’s tech to make those chips.

If AMD is a ‘pick-and-shovel investment in the AI industry, then ASML is the sheet metal yet to be heated for that shovel.

These companies might compete for investor money, but they desperately rely on each other at different stages in the value chain.

AMD Stock Risks

#1. Semiconductor Shortage

AMD saved itself from bankruptcy by outsourcing chip production to TSMC, but this decision made it vulnerable to new risks — like the 2021 semiconductor shortage.

AMD has been unable to meet consumer demand due to the shortage, thus missing out on hundreds of millions in revenue. Fortunately for AMD, their competition is also affected by the shortage.

CEO Lisa Su expects the supply shock to carry over into 2022.

#2. FAAMG Stocks

Another risk to consider is Big Tech and the FAAMG stocks. What if more of them follow Apple’s (AAPL) lead and begin making their own CPUs or GPUs?

FAAMG would have done this a long time ago if it were in their best interest, but it wouldn’t be the first time they turned an outsource into an insource.

Rumors alone could send shares of AMD tumbling in the short term. Intel shares dropped 10% on reports that Microsoft was developing its own CPUs in 2020.

AMD Stock Allocation in Your Portfolio

Here are some questions to help you with allocation:

  • AMD shares are up 1,200% in the last five years — is there better upside elsewhere?
  • Nvidia is 4x the size of AMD — can AMD close the gap? Does it have to?
  • Will geopolitical tensions in the semiconductor industry slow AMD’s growth in the short term?
  • How will the $50 billion allocated to domestic semiconductor production in the latest infrastructure bill affect AMD?
  • Is AMD the best AI stock?
  • Can AMD exceed its revenue guidance set on the most recent earnings call?
  • Will the more capable tech companies begin making their own CPUs and GPUs?
  • Is AMD a sneaky crypto stock?
  • Is there a world where Nvidia takes over the entire space?
  • Can CEO Lisa Su continue to bury Intel?
  • Will AMD outperform bitcoin, VOO, and QQQ over the next ten years?

If you feel the onset of a headache or lower back pain, consider buying an S&P 500 ETF, and you’ll probably do better in the long term anyway.

Join The Motley Fool Stock Advisor & see their top ten stock picks for investors to buy right now.

AMD Stock FAQs

What do analysts say about AMD stock?

Based on 12 analysts offering recommendations for AMD in the last 3 months, the average price target is $111.73 with a high of $150 and a low of $70. This earned AMD a “strong-buy” rating.

Is AMD a buy, hold, or sell?

Here’s how 38 investment analysts rated shares of AMD:

  • Buy: 16
  • Outperform: 5
  • Hold: 16
  • Underperform: 0
  • Sell: 1

AMD is a buy, according to the polled analysts.

What is the target price for AMD stock?

The median price target for AMD stock is around $110.00. Shares of AMD have traded between $72.50 and $122.49 in the trailing twelve months.

Bottom Line: AMD Stock Forecast

AMD is on the right side of digitization. In fact, digitization can’t happen without companies like AMD.

AMD is an index fund for the future of technology.

This article is for informational purposes only. It is not intended to be investment advice.

Sean Graytok
Sean Graytok
Sean is a student of the financial and technology industry. He is interested in the people and companies who are driving the innovation that will change our future.