AMD Could Jump Upward if China Gives Its Acquisition the Go Ahead
InvestorPlace - Stock Market News, Stock Advice & Trading Tips AMD stock is fully priced now but positive news regarding Xilinx deal will send it higher, if and when that...
Semiconductor firms remain as important as ever. Investors have come to realize that names like Advanced Micro Devices (NASDAQ:AMD) and AMD stock represent a vitally important industry. Throughout the pandemic, we’ve learned the importance of semiconductors — and how their supply can have serious effects on the economy.
That aside, though, for this article we’ll be taking a look at AMD from a different angle: its expanding footprint. In addition to this factor, the company also has a recent deal in the works that will only up its shares if it comes to fruition.
Here’s what you should know about AMD stock moving forward.
AMD Stock: An Expanding Footprint
Those who go and look at the most recent investor presentation for AMD stock will find that the firm has plenty of ways to win. The company has said its total addressable market (TAM) comprises of three core businesses: data centers, PCs and gaming. Further, it has pegged the value of those markets at $35 billion, $32 billion and $12 billion, respectively. As such, the value of the company’s TAM is $79 billion. That is a pretty decent sandbox to play in.
At the time, estimates were that AMD’s TAM would be $110 billion immediately following the deal.
The Hang Ups
The problem is that AMD hasn’t closed its purchase of Xilinx yet, although it was expected to occur in 2021. Still, when that does happen, AMD stock should rise significantly.
For example, earnings per share (EPS) figures are expected to hit $4 when the merger occurs. Right now, though, Yahoo! Finance projects that its 2022 EPS should be around $2.63. Remember, that’s without the benefit of Xilinx calculated in.
There’s more to complicate this deal, however. Recently, reports also surfaced that China’s competition authority is conducting an in-depth examination of the deal. That news probably isn’t making investors happy, given how strict China has been in the markets. However, if approved, AMD will certainly skyrocket.
So, investors should be aware that Advanced Micro Devices has a potential catalyst in its favor that can fundamentally change it for the better. But that catalyst is undergoing real scrutiny, to be sure.
A Meta Platforms Deal
There is more good news, though, in the form of a catalyst that has already occurred. Back in November, AMD announced that it had won a contract with Meta Platforms (NASDAQ:FB).
Specifically, Meta Platforms picked the company’s EPYC central processing units (CPUs) for its data centers. That was a big win for Advanced Micro and AMD stock. Still, competition for Meta’s expanding business won’t all favor the company. Nvidia (NASDAQ:NVDA) factors into the conversation as well.
Meta is expected to spend between $5 billion and $9 billion of additional capital for artificial intelligence (AI), for instance. Raymond James analyst Chris Caso expects that “Nvidia is likely to be the largest beneficiary.”
Clearly, AMD’s battle with Nvidia will continue in the metaverse. But the main takeaway here is that AMD has proven its mettle in relation to data-center dominance.
The Bottom Line on AMD Stock
All in all, AMD remains sound. Third-quarter revenues hit $4.3 billion. And, operationally speaking, things were even better. The company recorded $2.09 billion in profit.
That said, it’s easy to do as I’ve done and create positive narratives around AMD stock. While I do believe in the firm’s long-term value, it’s already priced at market. Its average target price sits at nearly $145. Shares currently trade for around $150.
That suggests the market already fully appreciates what AMD is doing. If it pulls back, though, I think there’s good reason to load up on shares, provided the pullback isn’t due to some sort of serious issue. Plus, if positive news regarding Xilinx materializes, AMD stock could really pop.
On the date of publication, Alex Sirois did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Alex Sirois is a freelance contributor to InvestorPlace whose personal stock investing style is focused on long-term, buy-and-hold, wealth-building stock picks. Having worked in several industries from e-commerce to translation to education and utilizing his MBA from George Washington University, he brings a diverse set of skills through which he filters his writing.
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