Is AMD’s Price Run Justified?
AMD’s (NYSE:AMD) stock has seen a stellar run with over a 135% surge in price over the last six months. While there are several factors that has led to such optimism in the company, the current price appears to be overvalued, in our view. AMD’s near term growth can largely be attributed to its Radeon GPUs and Ryzen mobile processors. Looking forward, its 7 nanometer server chips will start shipping from 2019. We have created an interactive dashboard ~ What Is The Outlook For AMD ~ on the company’s expected performance in 2018. You can adjust the revenue and margin drivers to see the impact on the company’s overall revenues, earnings, and price estimate. Note that we currently maintain our price target of over $17, which is much lower than the current market price of $28.
Expect Radeon And Ryzen Products To Drive The Near Term Growth
We forecast AMD’s overall revenues to grow in the mid-20s range for the full year, and in high single digits in the coming years, primarily led by a strong growth in Radeon and Ryzen products. Several Ryzen mobile processor based notebooks from various OEMs (original equipment manufacturers), including Samsung and Lenovo, have been launched in the recent past, and more will likely follow in the coming quarters. The second generation of Ryzen processors was launched recently, and it will likely aid the segment’s future growth. Apart from Ryzen, AMD has expanded its graphics card portfolio with its launch of Radeon GPUs, which are focused on the enthusiast gaming segment. Radeon products are performing well in the market, evident from the segment’s performance in the recent past. This market was dominated by Nvidia. However, given the high performance of Radeon, AMD has been able to make inroads into this market. Higher demand for Ryzen and Radeon will also give some room to improve pricing, and aid the margin growth.
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One of the factors that has led to the recent optimism in the company is its 7 nanometer server chips, which it plans to roll out in 2019. This will not only allow AMD to compete with Intel, but also stay ahead one generation from its 14 nanometer and the upcoming 10 nanometer chips. Also, AMD has managed to grab some of Intel’s share, led by higher demand for its products over the last few quarters.
Having said that, the current market price appears to be way above the consensus range. In fact, the average target price of AMD is $18 (among 30 analysts), as per the data compiled by The Wall Street Journal. Our current price target of $17 is based on expected EPS of $0.52 per share in 2018, and a TTM price to earnings multiple of 33x.
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