By How Much Can AMD Boost Its Value By Focusing On AI?
Intel (NASDAQ:INTC) currently dominates the server (or data center) market, but the advent of artificial intelligence (AI) and machine learning has opened up doors for graphics maker Nvidia (NASDAQ:NVDA). The company has seen strong growth lately due to success of its GPUs in machine learning applications. This offers a strong opportunity for AMD (NYSE:AMD) as well, which has traditionally struggled somewhat against Intel in the server market. Nvidia believes that its addressable market is around $30 billion. We estimate that if AMD captures nearly 10% of the addressable AI market, its valuation can jump by nearly 50% from our current estimate. Take a look at our interactive breakdown of key drivers and metrics for AMD to see how this can happen. Our price estimate for AMD stands at $10, implying a significant discount to the market.
AMD Can Add ~ 50% To Its Value If It Can Capture 10% Of The $30 Billion Market By 2020
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Artificial Intelligence applications are becoming a bigger part of data center computing. Therefore, Nvidia and AMD will benefit from the advantage that GPUs have in parallel processing, which works well for machine learning algorithms. Nvidia pegs the addressable market at $30 billion. If AMD can get 10% of this market, it could result in a 50% upside to our price estimate.
10% Market Capture Implies $3 Billion In Incremental Revenue – How Do We Arrive At This?
Nvidia currently dominates the machine learning GPU market because of its middleware that supports it. However, in the discrete GPU market, AMD has a 30% share against Nvidia’s 70%. If AMD can compete just as effectively in the machine learning GPU market, it would suggest that AMD will look to target 30% of the total addressable market, or approximately $9 billion. Now if AMD can take even one third of this (or 10% of total), it will add incremental $3 billion in Enterprise, Embedded and Semi-Custom revenue.
$3 Billion In Additional Revenue Will Result In 50% Jump In 2020 EPS, Price Estimate
We estimate AMD’s 2020 EPS to be $0.90. However, $3 billion in incremental Enterprise, Embedded and Semi-Custom revenue would boost AMD’s EPS for 2020 to $1.39, implying over 50% upside. A similar long-term impact on earnings would imply a 50% upside to our AMD price estimate.
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