Shares of AMD (NASDAQ: AMD) have dropped 36.9% this year, even as the demand for its products remains strong and the company delivered impressive Q1 results. The semiconductor giant primarily offers x86 microprocessors, server and embedded processors, development services, and technology for gaming consoles and semi-custom System-on-Chip (SoC) products.
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Last week, the company hosted its Financial Analyst Day, which left Rosenblatt Securities analyst Hans Mosesmann impressed. The analyst came away bullish and reiterated a Street high price target of $200 on the stock following the analyst day presentation. Mosesmann’s price target implies an upside potential of 110.93% at current levels.
Let us look at the reasons behind analyst Mosesmann’s bullish stance.
The company unveiled some key technology and portfolio updates on Analyst Day. This includes the Zen 4 core processor expected to be launched later this year and the Zen 5 core processor that is likely to be launched in 2024.
AMD also revealed “an expanded portfolio of high-performance, next-generation CPUs, accelerators, data processing units (DPUs), and adaptive computing products optimized for multiple workloads.”
Financial Updates
The semiconductor giant announced that starting with the Q2 results, AMD will be updating its business reporting segments that will be aligned with its end markets. These new business segments will be data centers, embedded business, client end markets, and gaming.
AMD updated its financial targets over the next three to four years (long term) and now expects its revenues to grow at a Compounded Annual Growth Rate (CAGR) of 20% and gross margin to exceed 57% as the company looks at a richer product mix and cost efficiencies.
The company targets an operating margin in the mid-30s percentage over the long term and a free cash flow margin of more than 25%.
AMD believes these long-term targets are very much achievable considering the total addressable market is worth $300 billion for its products.
As Dr. Lisa Su, AMD Chair and CEO pointed out in its Analyst Day press release, “The close of our transformational acquisition of Xilinx and our expanded portfolio of leadership compute engines provide AMD with significant opportunities to deliver continued strong revenue growth with compelling shareholder returns as we capture a larger share of the diverse $300 billion market for our high-performance and adaptive products.”
Wall Street’s Take
Analyst Mosesmann believes that “AMD deserves a premium P/E [price-to-earnings] multiple on the premise of a CPU/GPU share gain, the addition of Xilinx’s broad-based portfolio of FPGAs/IP [field programmable gate array /internet protocol] and a dollar content expansion story, which is multi-year in nature.”
The rest of the analysts on the Street, however, are cautiously optimistic with a consensus rating of Moderate Buy based on 14 Buys and 10 Holds. The average AMD price target is $138.40, which implies a 45.9% upside potential to current levels.
Bottom Line
AMD is seeing strong underlying demand for its products, and analysts, including Mosesmann, are of the view that AMD will chip away at Intel’s market share over the next two to three years. Considering this scenario, AMD stock may soar higher.
What’s more, the chip maker also scores a “Perfect 10” on the TipRanks Smart Score system, indicating that the stock is highly likely to outperform the market. The TipRanks Smart Score system is a data-driven, quantitative scoring system that analyses stocks on eight major parameters and comes up with a Smart Score ranging from 1 to 10. The higher the score, the more likely is the stock to outperform the market.
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