Is AMD Stock A Buy? The science behind semiconductors is complex, and investors don’t necessarily need to know exactly how the technology works. The important point is that semiconductors play a critical role in the devices that drive our digital world.
They are found in the CPUs of computers, as well as in smartphones and other mobile devices. They power graphics processing units (GPUs) in gaming devices.
Digital cameras and smart TVs also need semiconductors to function, as do the newest features in various cars and trucks, such as Advanced Driver Assistance Systems (ADAS).
Companies involved in producing semiconductors and the high-performance microprocessors, CPUs, and GPUs they support are always working to make their products faster, more powerful, and more reliable, as there is a nearly limitless demand for next generation technology.
US-based Advanced Micro Devices (AMD) is an important player in this competitive industry, and it is working to unseat larger rivals like NVIDIA (NVDA) and Intel (INTC) for a larger share of the market.
Investors know that adding this type of technology stock to their portfolios is a smart choice, but the question is, which one? Is it best to stick with the biggest companies, or is there more growth opportunity with smaller, more agile players? In other words, is AMD stock a buy?
Analysts Estimate AMD Data Center To Drive $$
End users might choose one gaming system over another or one computer over another based on quality, speed, and performance. What most don’t know is that they are actually choosing one type of chip over another.
In a nutshell, AMD develops and produces the chips that form the heart and soul of technology-driven devices.
While the makers of these devices might create the individual features of computers, mobile devices, gaming consoles, and similar, the chips make those features possible. AMD’s products, in particular, offer cutting-edge performance when it comes to the speed and power of computing and graphics technologies.
Speed, power, and reliability are also critical to data centers, many of whom rely on AMD. This is important, because AMD’s data center chips have a significant technological advantage over competitors’, making them the first choice in this rapidly growing market.
Some analysts expect that the data center division alone could drive impressive revenue growth for AMD over the next two years.
Is AMD Stock A Buy?
AMD stock saw historic highs at the beginning of September 2020, followed by an abrupt drop as investors cashed out. That, of course, spooked other investors, who sold their shares fearing further declines.
However, analysts are nearly unanimous in saying that this volatility isn’t a sign of things to come. Instead, there is widespread agreement that AMD has substantial growth potential, and those who buy now will enjoy enhanced gains, as they are getting shares at a relative bargain.
There are compelling reasons that give analysts reason to be optimistic about AMD’s future. For example, the newest gaming consoles from Sony and Microsoft are slated to use AMD processor chips, and AMD has already seen growth related to new work-from-home demand.
This, coupled with increased demand for cloud computing, has put AMD in the right place with the right product at the right time.
Consider this: for the last six months of 2019, AMD reported sales growth of 28 percent year-over-year. In the second half of 2020, projections put sales growth at roughly 30 percent, and it appears that another 20 percent is likely for the same period in 2021. That could drive share value up by 30 percent or more over the next 12 months.
This information leads to a single conclusion: the future looks bright for AMD. That makes AMD stock a buy.
Risks of Buying AMD Stock
AMD has historically played second to Intel’s dominant market share. Intel has largely been viewed as the industry gorilla that kept AMD alive simply to avoid risking the ire of antitrust lawyers who could catalyze a company breakup. So AMD always risks the might of Intel and its deeper pockets from challenging its progress.
Chip design is notoriously difficult too, and mired with delays given the complexities of design and manufacture. As a result, the company might experience delays in research and development. Such delays might give competitors time to take back some of AMD’s hard-won market share.
Perhaps the biggest question for investors is to what extent is future performance already considered in current share prices? AMD is relatively expensive and doesn’t offer a dividend. If that high price already includes expected strong performance, those that buy now might see limited movement.
Generally speaking, while these concerns are valid, they present an average amount of risk. The same concerns could be assigned to most companies, and by all accounts, AMD is not showing any signs that investors should worry.
Will Intel Or Nvidia Eat AMD’s Lunch?
Recently, it’s been argued that, in terms of strategy – and execution of strategic goals – AMD has demonstrated superior performance over Intel.
Specifically, AMD has a clear strategy that takes the company from its current state to its future state. Intel is struggling in this area, which is likely to reduce its ability to compete for market share.
For example, AMD has successfully launched its 7 nm chip, but Intel’s has been delayed until at least 2022. That alone is likely to send clients to AMD over Intel for the next year.
While NVIDIA isn’t facing challenges at the same level as Intel, it’s failure to close deals related to the new Sony and Microsoft gaming systems was a significant miss. AMD’s success in making the gaming deals is not enough to overtake NVIDIA, but it could be a sign of things to come.
Finally, from a financial perspective, AMD is in a good place. It’s market cap is roughly $100 billion – a fraction of NVIDIA’s $325 billion – but it is making important strides in revenue.
For example, in 2019, AMD reported revenues of $6.7 billion. NVIDIA reported $10.9 billion, which is certainly impressive, but the gap between the two companies is surprisingly small.
Meanwhile, AMD is expected to increase earnings by 70 percent for fiscal year 2020 and 51 percent in fiscal 2021. In contrast, NVIDIA’s profits are expected to increase 57 percent for fiscal 2020 and 21 percent in fiscal 2021.
These factors do not guarantee that AMD will outperform the competition, but they give investors a reason for optimism. As things stand currently, it appears likely that AMD will pull market share away from its competitors, rather than lose market share to competitors.
Is AMD Stock a Buy? The Bottom Line
The bottom line is that AMD stock is a buy. It’s a technology company with a quality product that is currently in high demand. AMD’s strategy is solid and its financials look good.
More importantly, analysts predict strong growth over the next year and beyond. While competition can’t be discounted, AMD appears well-prepared to mount an effective offense to gain market share.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.