AMD: an attractive risk/reward game

In recent years, Advanced Micro Devices’ (AMD) exceptional climb in the semiconductor food chain has not only resulted in increased market share for its products, but has been reflected in huge price gains for the stock. Not so in 2021, a year that has disappointed investors so far.

But Wells Fargos Aaron Rakers thinks there are several reasons to believe AMD stocks will be back in the spotlight soon enough.

With server CPU momentum as a “main focus,” the analyst believes the company can “continue to gain market share in PC and server CPUs and see a mix-driven GM% expansion.” Throw into the mix the future addition of Xilinx – the acquisition is expected to close by the end of 2021 – and the risk/reward paradigm for the stock looks “appealing”.

Looking ahead to the upcoming Q2 results, Rakers expects “continued momentum” in the company’s 7nm Rome and Milan EPYC server CPUs. The analyst believes the strong showing will boost investor confidence in the company’s ability to reach more than 20% consignment share.

“As a reminder,” the 5-star analyst noted, “AMD’s Milan EPYC ramp brings much broader OEM adoption of systems: 100+ systems versus nominal # systems with Rome, as well as continued broadening (+2x) cloud adoption with 400+ AMD-based cloud instances expected by the end of 2021.”

While Rakers thinks the center of gravity still revolves around “shipping share momentum”, the increase in the 7nm Zen 3 Milan EPYC CPU cycle remains “undervalued”.

This is due to the advantage of a higher ASP (average selling price) for the Milan range compared to the Rome product line; Mercury Research estimates an ASP of over 50% for Milan vs. Rome.

Given the recent “heightened uncertainty” for Intel’s next-gen Sapphire Rapids (10nm Enhanced SuperFin) and Granite Rapids (7nm) Xeon-SP processor roadmaps, Rakers believes continued implementation of the EPYC roadmap will remain an important factor in maintain investor confidence.

Overall, Rakers remains confident in AMD’s ability to execute the stock and reiterates an Overweight (ie buy) rating. The analyst also gives the stock a price target of $120, implying a potential increase of 38%. (To view Rakers’ track record, click here)

Overall, the street’s average price target clocks in at $106.94, meaning stocks will add 23% muscle in the coming months. Overall, the stock has an average buying consensus rating, based on 12 buys and 8 held. (View AMD stock analysis on TipRanks)

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Disclaimer: The opinions expressed in this article are those of the featured analyst only. The content is for informational purposes only. It is very important to do your own analysis before making any investment.