What’s Driving AMD’s Stock Price Run?

AMD’s (NYSE:AMD) stock has seen a stellar run with over a 57% surge in price year to date. While there are several factors that has led to such optimism in the company, the current price is much higher than our estimate. AMD’s near term growth can largely be attributed to its Ryzen and Radeon products, along with EPYC processors, all of which are gaining market share from Intel.

• Radeon is AMD’s line of graphic processor units (GPUs).
• Ryzen is the line for the company’s CPUs.
• EPYC refers to x86 microprocessors based on Zen microarchitecture targeted for server markets.

What’s Driving The Stock Price Run?

• AMD is gaining share in key areas ~ servers, desktops & notebooks, and GPUs.
• The company’s datacenter processors’ market share could increase from 4% to 10% by next year.
• Share gains are expected in notebooks, desktops, and GPUs as well.
• The overall X86 market is worth $18 billion, and a 10% share will translate into $1.8 billion in revenues for AMD.
• This is significant, given its overall revenues are under $7 billion.
• AMD’s new processors are based on the 7 nanometer node and feature up to 64 cores, which is the latest generation.
• 7nm chips are being manufactured by Taiwan Semiconductor Manufacturing Company (TSMC), which is seeing strong order inflows of late.
• The overall positive coverage and higher price targets from some of the analysts have fueled the stock price gains in the recent past.

How Has The Business Been Faring?

• AMD’s revenues have grown at a CAGR of 18% over the last three years.
• Revenues of $6.5 billion in 2018 reflect 23% y-o-y growth.
• Revenue growth is being led by the Computing & Graphics segment, which includes its Radeon and Ryzen products.
• EBITDA margins have improved from -2% in 2015 to 12% in 2018.

What’s Driving The Revenue And Margin Growth?

• Strong market share gains in desktops, notebooks, and server markets.
• This can be attributed to the competitive performance of these products at a relatively cheaper price point, when compared to Intel’s offerings.
• Higher demand for its Radeon, Ryzen, and EPYC products have given the company some room to increase its average selling prices (ASPs), which has aided the margins.

What’s The Outlook Like For AMD?

• Revenues will likely grow in high single-digits to $7 billion in 2019.
• The growth should be higher in 2020 with full impact of 7nm products.
• Higher ASPs should drive the margins higher to around 15% in 2019.
• Our current price estimate of $22 for AMD is based of a 33x forward price to earnings multiple.

View our interactive dashboard analysis ~ How Did AMD Fare In 2018, And What Can We Expect In 2019? You can modify key drivers to arrive at your own estimates for the company’s earnings and valuation. In addition, you can also see all of our data for Information Technology Companies here.

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