Advanced Micro Devices, Inc.

AMD Details

Advanced Micro Devices, Inc. (NASDAQ: AMD) is a semiconductor manufacturing firm in the United States. The business provides x86 microprocessors (CPUs), accelerated processing units (APUs), discrete graphics processing units (GPUs), and semi-custom System-on-Chip (SOC) solutions and chipsets for the PC, gaming, datacenter, and embedded industries.

Latest News:

• Adopted AMD for Large Scale AI Training: On May 26, 2022, Microsoft announced the utilization of AMD InstinctTM MI200 accelerators to enable large scale AI training workloads, continuing AMD and Microsoft's cloud partnership.
• Acquisition of Pensando: On May 26, 2022, AMD announced the acquisition of Pensando Systems on May 26, 2022, in a deal for roughly USD 1.9 billion. It will add a high-performance data processing unit (DPU) and software stack to AMD's data centre product range, which is already in use at scale by cloud and corporate clients such as Goldman Sachs, IBM Cloud, Microsoft Azure, and Oracle Cloud.
• Collaboration With Qualcom: On May 17, 2022, AMD and Qualcomm announced a partnership to improve Qualcomm® FastConnectTM connection for AMD RyzenTM processor-based computing solutions. This solution allows wireless management with support for 32+ commonly used Open Standard-Based (DASH) profiles when combined with the FastConnect 6900.

Q1 FY22 Results:

• Robust Revenue: AMD's revenue in Q1 FY22 was USD 5.9 billion, up 71% from USD 3.4 billion in Q1 FY21, due to increasing sales in the computing and graphics enterprise, embedded and semi-custom businesses, as well as revenue from the recent acquisition of Xilinx.

• Margin Expansion: In Q1FY21, Gross margin was 48%, an increase of 2 percentage points year-over-year and a decrease of 2 percentage points quarter-over-quarter. The year-over-year increase was primarily driven by higher server processor revenue and high margin Xilinx revenue, partially offset by amortization of intangible assets and acquisition-related costs.

• Increased Profitability: In Q1 FY22, the company's net income was USD 786 million, up from USD 555 million in Q1 FY21. Higher operating income was the primary driver of the year-over-year rise. Moreover, diluted earnings per share increased to USD 0.56 from USD 0.45, respectively.

• Reported record Free Cash Flow: During the quarter under consideration, the company reported record free cash flow was USD924 million in the quarter compared to USD 832 million a year ago and USD 736 million in the prior quarter. And also reported a record cash from operations of USD 995 million in the quarter compared to USD 898 million a year ago
  

FY 22 Outlook

• Estimated Revenue and Gross Margins: AMD forecasts revenue of roughly USD 26.3 billion for the FY22, up from earlier projection of approximately 31%, due to the inclusion of Xilinx and increased server and semi-custom sales. AMD predicts a non-GAAP gross margin of around 54% in FY22, up from a previous forecast of around 51%.

Key Risks:

The company is exposed to a variety of risks ranging from Intel Corporation’s dominance of the microprocessor market and its aggressive business practices may limit their ability to compete effectively on a level playing field. The semiconductor industry is highly cyclical and has experienced severe downturns that have materially adversely affected, and may continue to materially adversely affect, their business in the future. Unfavorable currency exchange rate fluctuations could adversely affect company.

Valuation Methodology: EV/Sales Multiple based Relative Valuation

(Source: Analysis by Kalkine Group)

Stock Recommendation:

AMD's stock price has fallen 35.68% in the past six months and is leaning towards the lower end of its 52-week range of USD 164.46 to USD 77.47. We have valued the stock using the EV/Sales multiple based relative valuation methodology and arrived at a target price of USD 116.50.

On daily price AMD shares have recorded a breakout above the downward sloping trendline, with leading momentum indicator14-day RSI recorded a bullish reversal and hovering in neutral zone with bullish bias. Further, AMD stock has decisively moved above 21-day SMA resistance, another bullish indicator. Also, MACD is rising with the spread between 12-day EMA and 26-day EMA is turning positive and MACD hovering above 9-day signal, bullish signal.

Based on robust revenue, increased margins, higher profitability, positive guidance, enough cash, related risks, technical standpoint and current valuation, we recommend a "Hold" rating on the stock at the current market price of USD 99.90 as of May 26, 2022, at 09:20 AM PDT.

1 Year Technical Price Chart (as of May 26, 2022, at 09:20 AM PDT). Source: REFINITIV, Analysis by Kalkine Group

Note 1: The reference data in this report has been partly sourced from REFINITIV.  

Note 2: Investment decision should be made depending on the investors' appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the valuation has been achieved and subject to the factors discussed above. 

Note 3: The report publishing date is as per the Pacific Time Zone.