Can this rapidly expanding chip manufacturer maintain its stellar performance on the stock market over the long term?
Over the past five years, Advanced Micro Devices (AMD -0.60%) has excelled in the stock market, greatly increasing investors’ wealth thanks to strong growth in the data center and personal computer (PC) markets, which has assisted in boosting revenue and earnings at a remarkable rate.
A $100 investment in AMD stock five years ago, for instance, is today worth more than $800. But will AMD be able to sustain this amazing growth over the following five years? Let’s investigate.
Sales have increased by about four times in the past five years, and AMD’s market value is at slightly over $138 billion. Compared to its market valuation of $18 billion in 2018, that is a huge increase.
Given the enormous increase in its business, this exceptional growth seems justified. AMD’s yearly revenue in 2022 was $23.6 billion, which is 3.6 times its $6.5 billion revenue in 2018. That significant increase can be attributed to AMD’s increases in market share for PC CPUs and the company’s expanding clout in the server processor industry.
At the end of 2017, Intel (INTC) reportedly held a commanding 0.79% of the server market, with AMD supposedly holding barely 0.8% of the market. However, in recent years, it has found its stride again and, according to Counterpoint Research, ended 2022 with a 20% share. It’s important to note that AMD increased its market share in servers by 8% just last year.
The microprocessor market has shown secular growth, increasing from $41 billion in revenue in 2012 to $108 billion in 2022, which has helped the corporation. The good news for AMD is that its target markets will continue to expand.
It won’t be shocking to see the corporation wrest additional market share from Intel, which is more significant. The revenue and earnings of AMD may increase quickly as a result of these two variables.
The future of the chipmaker is promising.
When it comes to multibillion-dollar markets like those for server chips, AMD is just beginning. The company’s data center division brought in $6 billion in revenue in 2022, but AMD believes there is a $42 billion long-term opportunity in this sector. The business has constantly improved its server processors while developing new products, which has helped it stay ahead of Intel.
The fifth-generation Epyc server CPUs from AMD are made utilizing a 5-nanometer (nm) process node, which enables them to perform significantly better than the prior generation. With the release of its Turin server processors in 2024, which are anticipated to be built on 4nm and 3nm processes, the chipmaker is anticipated to advance even further.
The Granite Rapids server CPUs from Intel, which could be released in 2024, are anticipated to be made utilizing a 5nm process. With a smaller process node, AMD would be able to fit more transistors onto a smaller die, increasing processing power while consuming less power. It won’t be shocking to see AMD overtake Intel in the enormous server processor market as a result.
Wall Street experts concur, with Vivek Arya of Bank of America predicting that AMD’s server market share may eventually reach 35%. Additionally, the business increased its addressable market by acquiring Xilinx last year.
AMD now has access to the adaptive computing and embedded chip sectors, creating a $135 billion in new revenue opportunities. AMD will be able to access numerous industries thanks to Xilinx, including data centers, artificial intelligence, and the auto industry.
The fact that AMD’s revenue and earnings are anticipated to increase over the next few years is due to all of these triggers.
Management stated that it anticipates long-term annual sales growth of 20% during the company’s 2022 investor day in June of the previous year. At the end of the projected period, revenue may increase to $47 billion if AMD’s top line grows at a rate of even 15% annually.
If AMD’s current price-to-sales ratio, which is 5.8, which is less than its five-year average sales multiple of 7.2, were multiplied by the anticipated revenue, it would result in a market capitalization of $273 billion, or over twice as much as it is currently worth.
But given the profitable markets AMD serves, don’t be shocked to see it expand more quickly. Given this, investors might wish to purchase this tech company and stick onto it for the following five years given the possible rewards.