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Advanced Micro Devices: Strong Competitive Positioning

I am bullish on Advanced Micro Devices (AMD) as it has a strong competitive position, a promising long-term growth runway, and reasonable valuation multiples relative to the company’s trading history.

On top of that, Wall Street analysts are quite bullish on the stock and the average price target implies decent upside over the next year.

Advanced Micro Devices is one of the leading semiconductor manufacturers in the world. It specializes in computing, graphics, and the manufacturing of embedded processors.

AMD provides x86 microprocessors for desktop computers under various names including the recent Ryzen series and AMD FX brand. AMD also offers discrete GPUs for both desktops and notebooks under the AMD Radeon graphics brand.

AMD grew from a dozen of employees with modest beginnings to a giant in the high-performing computing segment, with aims to solve some of the most interesting challenges of the world.

Strengths

AMD continues to register year-on-year growth due to strong investor confidence. For this reason, its stock has been described as “red hot,” and continues to sharply increase in value.

Its only significant competition is Intel in making CPUs and Nvidia in the market for graphic processing units for PCs, data centers, and gaming consoles. There are very few competitors in this market, making AMD an obvious choice for many clients (home users and enterprises).

AMD has managed to take the market share from Intel in CPUs for notebooks and servers. However, it lost ground for processors in the PC segment. Its stock has a best-possible IBD composite rating of 99.

Recent Results

AMD earned $4.3 billion for the third quarter of 2021 with an operating income of $948 million and a net income of $923.

The revenue increased by 54% year-over-year and 12% quarter-over-quarter. The gross margin increased by 48%, over 400 basis points. The quarter-over-quarter increases were mostly driven by Ryzen and Radeon processor sales.

Valuation Metrics

AMD stock looks reasonably priced at the moment. Its EV/EBITDA ratio is slightly elevated relative to its history at 31.9 times compared to its historical average of 29.3 times.

Furthermore, its P/E ratio is 42.2 times which looks cheap compared to its historic average of 67.9 times.

Analysts expect the company to see revenue, EBITDA, and normalized earnings-per-share growth in 2022 of 18.8%, 17.7%, and 26.2%, respectively.

Wall Street’s Take

According to Wall Street analysts, AMD earns a Moderate Buy analyst consensus based on 16 Buy, nine Hold, and zero Sell ratings in the past three months. Additionally, the average AMD price target of $145.05 puts the upside potential at 7.4%.

Summary and Conclusions

Advanced Micro Devices is a leading player in high-tech, high-growth space. The company has generated strong results lately, and appears poised to continue growing rapidly in 2022 and beyond.

On top of that, Wall Street analysts are quite bullish on the stock and the average price target implies decent upside over the next year. Moreover, the valuation multiples appear reasonable relative to historic levels and growth potential.

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