Bull Of The Day: AMD (AMD)
AMD has taken the world of advanced chip technology by storm, with revolutionary CEO Lisa Su transforming this discount semiconductor enterprise into...
AMD AMD has taken the world of advanced chip technology by storm, with revolutionary CEO Lisa Su transforming this discount semiconductor enterprise into a leading-edge innovator. Since Lisa Su took the helm in 2014, AMD shares have skyrocketed an incomprehensible 3,200% (a $1000 investment would have yielded you $32,000 in returns).
The pandemic's digitalizing economic impact pulled forward an enormous amount of demand for AMD's innovation-driven chips, demand that will only grow from here. This semiconductor powerhouse has produced record top and bottom-line results for the past 4 consecutive quarters, blowing past analysts' estimates each time. AMD achieved record profit margins, and management raised its guidance for the remainder of the 2021. Now, analysts across the board are driving up their EPS estimates propelling AMD into a Zacks Rank #1 (Strong Buy).
The last time AMD reached a Zacks Rank #1, it shot up 67.5% in just 1.5 months (July 17th to September 1st, 2020). AMD's August consolidation looks to presenting us with an excellent entry point as demand for next-generation chip technology continues to soar, providing AMD with pricing power and an incentive to push the boundaries of innovation.
AMD's Sights Set To The Future
AMD is already pushing the limits of possibilities with its latest patent filing, which unveiled a quantum-computing processor that would utilize teleportation. This patent addresses the stability and scalability issues that current quantum-computing frameworks have been struggling with and could revolutionize the world of computing if achieved. The technology may still be years away from commercial viability, but this patent filing illustrates AMD's focus on the 4th Industrial Revolution.
Quantum computing is a nascent space, but there is an enormous amount of capital flowing into its development due to the astronomical competitive advantage it would provide. In 2019, Google's GOOGL quantum-computer Sycamore proved its ability to solve a complex mathematical equation 158 million times faster than the world's fastest binary supercomputer (IBM's Summit). If AMD could attain a competitive edge in the quantum-computing space, the profit potential would be boundless.
As for near-term goals, AMD is expected to release its 5nm 'Zen 4' high-performance CPU in the second quarter of 2022, which will sustain this chip designer's high-performance leadership in the space. This next-generation computer processor will be up to 40% faster than the currently available 'Zen 3,' and will almost certainly be the go-to CPU for data centers (EPYC) and consumer desktops & mobile processors (RYZEN) alike, as Intel lags the innovative curve.
While Intel INTC has seemingly fallen asleep at the wheel with its once leading CPUs, AMD was provided with the rare opportunity to jump in the driver's seat of a market that had been monopolized for half a century. Intel's inability to match Taiwan Semi's TSM third party manufacturing abilities (AMD's preferred fabricator) with its one in-house operations combined with other systemic supply chain issues has propelled AMD at least 3 years ahead of it (on a generous scale).
Following a strongly worded letter from an activist investor group, Intel decided enough was enough and brought Pat Gelsinger on as the new CEO in February of this year. The company will be hard-pressed in this game of innovative catch-up to maintain its long-standing corporate relationships with AMD's CPU technology, showing clear performance advantages.
According to PassMark, AMD now controls 40% of the total CPU space, while Intel sits at 60%. AMD has more than doubled its market share in the past 5 years and will progressively control more in the coming years as Intel attempts to restore its leadership. TSMC's accelerating capabilities will be the backbone to AMD's future success, and I don't see Intel's in-house manufacturing catching up to TSMC anytime soon.
AMD is also a leader in the graphic processing unit (GPU) duopoly with NVIDIA NVDA. However, they have not been as successful in competing with this revolutionary chip maker, who has been taking a growing portion of market share in this space. Still, its GPU segment provides AMD with a further diversified product portfolio that provides a hedge for the volatile chip business cycles.
AMD has demonstrated accelerating revenue growth with its sales swelling by 99% in this past quarter, which flowed down to margin expanded profits that drove up 350% from a year prior. This chip innovator is expected to see double-digit annualized growth on both its top and bottom-line for years to come.
AMD's balance sheet is a fortress, with more liquid capital than total liabilities, meaning the risk of default is effectively 0, especially when factoring in its exponentially appreciating quarterly cash-flows.
AMD is a seemingly expensive stock with a forward P/E of 38.4x, far above the semiconductor industry average of 22x. However, when you factor growth into this valuation multiple (PEG), the company is trading at a discount to both the chip sector and its own 3-year average.
My bet in AMD is a bet on Lisa Su. She has been AMD's innovation catalyzer and invigorated this discount chipmaker into a high-performance, high-growth market leader. I am confident that she will continue to drive this technological backbone above and beyond expectations.
17 out of 25 analysts call AMD a buy today (0 sell ratings), with recent price targets being raised as high as $150 a share (over 35% upside from here). The 4th Industrial Revolution is upon us, and it's time to start investing in it.
More Stock News: This Is Bigger than the iPhone!
It could become the mother of all technological revolutions. Apple sold a mere 1 billion iPhones in 10 years but a new breakthrough is expected to generate more than 77 billion devices by 2025, creating a $1.3 trillion market.
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