AMD Stock Continues to Become More Attractive

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Advanced Micro Devices (NASDAQ:AMD) had a stellar 2020, with the stock almost doubling during the year. Robust sales of its gaming hardware and market-share gains against its competitors in the CPU space helped the company post remarkable growth throughout the year. Though its performance was boosted due to the pandemic, AMD stock in 2021 should pick up from where it left off last year.

What to Expect From AMD Stock Ahead of July's Earnings Report

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AMD has very adeptly gained ground against its key competitors such as Intel (NASDAQ:INTC). It continues to increase its total addressable market, most recently with its acquisition of semiconductor manufacturing company Xilinx.

AMD’s $35 billion acquisition of Xilinx compliments its existing businesses and opens up new opportunities in 5G, autonomous driving, networking, and other, related areas. The combined company will generate more than  $27 billion of revenue by 2025. Therefore, AMD has built up a powerful head of steam and has several major growth catalysts that will drive its growth this year.

Incredible Earnings Performance

AMD’s earnings in the past four quarters have been spectacular. It has delivered double-digit-percentage growth in revenues, comfortably beating analysts’ average estimates in three of the past four quarters. Its net profit and EBITDA margins are above the industry averages, while it has an impressive return on equity.

The company reported that its revenue had jumped 55% year-over-year to $2.8 billion in its third quarter,. AMD’s revenue growth was mainly sparked by robust demand for its PC, gaming, and data center products. Additionally, its gross margin improved by one percentage point versus the same period a year earlier. Perhaps what was more impressive was its earnings per share, which rose by 191% YOY to 32 cents.

AMD’s Enterprise, Embedded, and Semi-Custom businesses have been the stars of the past year, and in Q3 they grew 116% YOY. Additionally, its Computing and Graphics segment is moving along nicely, having delivered a 31% YOY increase in revenues. The unit’s growth has been driven by higher sales of its Ryzen processors.

Analysts’ average estimates for AMD’s Q4 are looking impressive so far. The firm’s EPS is expected to increase by at least 6 cents from the previous quarter to 41 cents. The mean revenue estimate for the chip maker is $3.02 billion, which is substantially higher than the $2.8 billion it reported in Q3.

Major Growth Drivers

Last year, AMD’s growth accelerated in areas where it had previously lagged the competition by a fair margin. That’s particularly true in the CPU space, where Intel has maintained a dominant position for several years. However, as of the end of Q3. AMD held its highest market share in the sector in the past decade or so,

AMD has done relatively well compared to Intel due to the former’s superior product line. AMD plans to further improve its product offerings by refining its existing Zen 3 architecture. It plans to streamline its 7-nanometer manufacturing process by optimizing its Ryzen 5000 series CPUs later in the year.

AMD’s semi-custom business has also been on fire lately, driven mainly by the hugely successful release of  next-generation gaming consoles. Specifically, AMD is powering Sony’s (NYSE:SNE) PlayStation 5 and Microsoft’s (NASDAQ:MSFT) Xbox Series X consoles, which will also result in many consumers buying new consoles.

Another positive catalyst for chipsets is the meteoric growth of the cryptocurrency industry. AMD is also making substantial inroads in the server market and is expected to rake in $1.5 billion of revenue from data centers in 2021.

The Bottom Line on AMD Stock

AMD had a fantastic 2020, and investors should expect more of the same in 2021. It has multiple growth vehicles that will enable it to generate strong demand for the foreseeable future. Its Xilinx acquisition will open up new opportunities and strengthen its existing offerings.

Moreover, AMD’s chips for next-generation gaming consoles and the crypto craze should be significant positive growth catalysts  this year. AMD is on the heels of its competition in the CPU and data-center spaces and has become a significant player in both sectors. Consequently, AMD stock is one of the most attractive investments available at this time.

On the date of publication, Muslim Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article.

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