AMD: A Good Year Ahead?

by Trefis Team
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AMD (NYSE:AMD) released its fourth quarter and full year 2017 earnings last week. The result were fairly expected but still impressive, and reinforced the idea that 2017 could well turn out to be an inflection point for the business. To put things in perspective, AMD’s revenue declined from nearly $5.4 billion in 2012 to a little under $4 billion in 2015, before recovering in 2016. While 2016 saw 7% growth in revenue, the figure jumped to 25% in 2017. In addition, AMD registered a full-year profit for the first time in 5 years, thanks to its fourth quarter earnings buoyed by holiday sales. So clearly the company is either doing something right, or is benefiting from improving market fundamentals. We believe it is a bit of both, and explain why below.

Market Fundamentals

On the market side, demand for high-end graphics among gaming enthusiasts, and that for high-end computing in data centers, is growing. This has led to growth in average selling prices (ASPs) across the board. AMD has successfully leveraged this market opportunity by introducing new Radeon GPUs, Ryzen CPUs for desktops and notebooks, and the EPYC server CPU refresh. This momentum is likely to spill over to at least the first half of 2018. We have created an interactive dashboard using Trefis’ technology that helps users forecast AMD’s earnings and valuation.

Our base case indicates that AMD’s fundamental value could be close to $10 per share, which is below the current market price. We forecast revenue growth of nearly 9% in 2018, and an adjusted EBITDA margin of close to 15%. You can modify our forecasts and estimates using our technology to come up with your own valuation estimate for the company.

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