It’s easy to make the case for Advanced Micro Devices’ (NASDAQ:AMD) ongoing success. In the PC compute and enterprise/cloud datacenter markets, the chip giant is seeing ongoing x86 market share gains and given its CPU/GPU/FPGA portfolio of products, the company also has a big opportunity ahead in accelerated compute/AI.
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That said, J.P. Morgan analyst Harlan Sur thinks that on top of those, there is another option for growth yet to be fully realized by the Street. “We believe the market continues to under-appreciate the large market opportunity in the embedded markets (auto, industrial, retail, IoT, service provider) especially given the strong market leadership in embedded that Xilinx has brought to the AMD team,” the 5-star analyst recently said.
As Sur notes, one of the advantages of the Xilinx acquisition is that the firm brought to the table its domination of many of the embedded end-markets with its FPGA/adaptive compute solutions. Boosted by AMD’s scale, the company can now use the Xilinx/FPGA leadership to drive further growth. The “cross-selling opportunities” together with an embedded focused portfolio of x86 CPU products, should result in further embedded market share.
Looking at the numbers, Sur reckons the embedded x86 processor opportunity amounts to one currently worth $8.5 billion per year and is anticipated to keep expanding at a 3-5% CAGR over the next 5 years. Right now, AMD has around has ~5% market share but Sur believes the near/mid-term opportunity is as big as that in compute/AI. Similar to its current PC/datacenter market share, Sur sees AMD heading toward a 25-40% share of this market over this period, the result of which will be an “incremental $2-$3B+ per year of revenues and $0.40-$0.50 of incremental earnings power.”
So, how does this opportunity manifest itself for investors? Well, here’s the problem. While Sur applauds AMD’s execution, given the stock’s outperformance in 2023 – up by 99% so far – the shares’ lofty valuation keeps him on the sidelines with a Neutral rating and $92 price target. (To watch Sur’s track record, click here)
Turning now to the rest of the Street, where based on 19 Buys and an additional 8 Holds, the stock claims a Moderate Buy consensus rating. Like Sur, however, most on the Street see the shares as overvalued; the $104.37 average target implies the stock will decline by 19% in the year ahead. (See AMD stock forecast on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
