AMD's share price soared on Tuesday, hitting a record close, because an analyst raised the company's target share price.
"AMD's share price soared on Tuesday, hitting a record close, because an analyst raised the company's target share price.
At the close, AMD's share price rose 7.37 dollars to 85.04 dollars, an increase of 9.49%. The last time the company's share price set a closing record was July 30th, when the stock closed at US$ 78.20, due to its strong financial performance and signs that AMD is gaining market share from Intel. according to Tuesday's closing price, AMD's market value is $99.84 billion, which is only a thousand miles away.
In a research report released earlier Tuesday, Mark Lipacis, an analyst at Jefferies, a Wall Street investment bank, raised AMD's target price from US$ 86 to US$ 95, and set its stock rating as ""Buy"".
Li Pacis said that AMD and its chip foundry consumer TSMC's preemptive advantage over Intel seems to be ""systematic"". He said that it is estimated that AMD's share growth will accelerate, especially in the server market. It is estimated that AMD's market share will rise to 30% in the next two to three years, and will reach 50% in four to five years. In a recent earnings conference call, AMD said that its share in the server market has just reached 10%.
According to the data provided by FactSet, a financial information provider, among the 36 analysts who tracked AMD, 15 of them set their stock ratings as ""overweight"" or ""buy"", 18 as ""give"", and 3 as ""sell"". The average target price given by these analysts to AMD stocks is $75.76.
AMD's previous financial report showed that the company's second-quarter results exceeded Wall Street analysts' expectations. In the quarter, AMD's revenue increased by 26% year-on-year to reach 1.93 billion US dollars, which was 76 million US dollars higher than the analyst's average expectation; Adjusted earnings per share increased by 125% year-on-year to US$ 0.18 per share, which was one cent higher than the average analyst's expectation. In addition, AMD estimates that the third quarter revenue will increase by 42% year-on-year, and the annual revenue will increase by 32% year-on-year. These pessimistic performance expectations also exceed the analyst's expectations, indicating that the company's share price still has room to rise after rising by nearly 70% this year.
Market analysts believe that there are four stimulating factors that mean AMD's share price will continue to rise in the future.
1. Intel's 7 nm chip is delayed in mass production
Unlike Intel, a larger competitor, which consumes chips in its own foundry, AMD outsources chip consumption to TSMC, the world's most advanced contract foundry.
In recent years, Intel has lagged behind TSMC in the ""process competition"" for manufacturing smaller and denser chips. Intel made great efforts to transition from 14 nm chips to 10 nm chips, which led to chip shortage, which made AMD grab market share. Recently, Intel announced that it had delayed the release of 7 nm chips, which put it at a disadvantage again.
AMD's latest Ryzen and Epyc CPU used TSMC's 7 nm process, but as Intel tries to hold back, these chips may compete with Intel in the PC and data center markets respectively.
2. AMD's share in the personal computer market has increased from time to time
According to PassMark Software, between the third quarter of 2016 and 2020, Intel's share in the desktop PC market plummeted from 76.6% to 51.3%, while AMD's share increased from 23.4% to 48.7%, more than doubling. During the same period, Intel's share in the notebook computer market dropped from 91.2% to 81.2%, while AMD's share increased from 8.8% to 18.8%, which also doubled.
While Intel was struggling in the dilemma of chip supply and technology, AMD introduced a new generation of Ryzen CPU, which corrected the poor single-thread performance of Bulldozer CPU before, and prompted PC manufacturers to adopt AMD chip products in droves.
In the second quarter, the revenue of AMD desktop and notebook CPU increased year on year. As a result, AMD's computing and graphics revenue soared 45% year-on-year to $1.37 billion. In contrast, Intel's ""PC-centric"" business revenue increased by only 7% year-on-year in the second quarter.
3. The growth of personal computer and game machine business
In the game market, AMD's latest Radeon graphics processor (also based on TSMC's 7 nm process) has an advantage over NVIDIA's GeForce graphics processor. According to JPR data, from the first quarter of 2019 to 2020, AMD's share in discrete GPU market increased from 22.7% to 30.9%, while NVIDIA's share declined from 77.3% to 69.2%.
AMD beat its competitors in the process competition, and thus got a pause in the competition with NVIDIA. AMD and NVIDIA both outsource chip consumption to TSMC, but the latest game GPU of the latter still uses 12 nm chips. As a result, AMD chips can offer comparable performance to NVIDIA chips at a lower price.
In addition, AMD also provides customized APUs (separation of CPU and GPU) for Sony's PS4 game console and Microsoft's Xbox One game console, thus occupying a dominant position in the game console market. However, the sales speed of these two game consoles slowed down, which caused AMD's EESC (enterprise, embedded and semi-customized) revenue to drop by 4% to 565 million US dollars in the second quarter. However, the upcoming PS5 and Xbox Series X, both of which use AMD chips, may change this trend next year.
4. AMD's potential growth prospects in the data center market
According to PassMark data, in the third quarter of 2020, Intel still controls 98.5% of the data center market, while AMD's share is only 1.5%
However, AMD pointed out that the sales growth of its Epyc server CPU offset the impact of the decline in game machine chip revenue in the EESC business in this quarter to a certain extent. In addition, Vivek Arya, an analyst at Bank of America, recently predicted that AMD may occupy more than 25% of the server market share before 2023, because the company will bring the revenue from personal computers to the data center market.
Even so, investors should not ignore the challenges AMD may face.
Intel is in a lot of difficulties at present, but the company can outsource the consumption of new chips to TSMC and actively advance to the factory to chase AMD. Nvidia is still one generation behind AMD, but it is estimated that the next generation of game GPU (using 7 nm or 8 nm chips) will be launched in the near future. In addition, AMD's stock price-earnings ratio is as high as 70 times or more, which means that its stock is not cheap."