During periods of market volatility and deteriorating breadth, as we’ve seen over the past few trading sessions, it’s always a good idea to keep an eye out for buying opportunities in the strongest stocks.
Getting too caught up in the ebb and flow of the indices often distracts investors from their overall goal of generating long-term alpha by identifying companies with innovative products and services.
For example, semiconductor stocks are a great place to look for buying opportunities in market weakness, given all the secular growth engines that create opportunities for the best companies in the industry.
Advanced micro-devices (AMD) – Get Report is a chip stock that really stands out as there are plenty of catalysts specific to its business that could help the stock rally in the months ahead.
With significant demand for AMD’s computer chips expected to deliver strong annual sales growth this year, a fantastic opportunity to take market share from a rival, and a potentially groundbreaking acquisition on the horizon, chances are this stock is headed for $100 a share earlier than current market action would lead you to believe.
Let’s take a closer look at why AMD stocks could be on their way to the passing of the century in the coming months.
Explosive growth in all business segments
When you look at all the different forms of technology that rely on AMD’s powerful chips, it’s easy to spot the opportunity here.
We live in an increasingly technology-oriented world, which means that the need for devices such as computers, consumer electronics and data centers is increasing at an astonishing rate.
AMD designs the microprocessors that power these devices, and the company is currently experiencing explosive growth in all major business segments.
The company’s central processing units are essentially the brain of a computer and are seeing high demand thanks to the growth of data centers and a red-hot PC market.
AMD graphics processing units are used to increase the speed of image rendering and improve image resolution and color definition. With rapidly growing end markets such as video games and machine learning, this is another area of AMD’s business with clear benefits.
To confirm that this is a company that is firing on all cylinders, look no further than the company’s massive first-quarter profit as AMD’s revenue improved 93% year over year to $3.45 billion.
This revenue growth was driven by higher revenues in computing and graphics and enterprise, embedded and semi-custom segments, telling us the company’s Ryzen, Radeon and EPYC processors are flying off the shelves.
As AMD increased its forward guidance after the first quarter and now expects annual revenue growth of 50% from the previously expected 37%, strong earnings momentum should play a big part here to help the stock outperform going forward.
Gaining market share from Intel
A few years ago, it was hard to imagine a scrappy chipmaker like AMD taking any significant market share from a tech powerhouse like Intel. (INTC) – Get Report.
However, thanks to a slowdown in production of Intel’s latest-generation chips and incredibly strong data center sales in the wake of the pandemic, AMD is gaining significant market share from its competitor and should continue to do so in the future.
AMD competes with Intel to provide data center chips, which are in high demand in the cloud and enterprise markets with so many companies continuing their digital transformations.
The main difference between Intel and AMD here is that Intel handles the production of its chips in-house while AMD works with a fabulous model.
That means AMD relies on third-party foundries like Taiwan Semiconductor Manufacturing (TSM) – Get Report to create its advanced chips instead of controlling production itself.
Intel’s chip production issues will last into early 2022, giving AMD a great opportunity to take business from Intel.
It’s worth noting that in the first quarter, AMD’s data center revenues doubled, while Intel’s data center revenues are down 20%.
Any further evidence of this shift in market share after both companies announced their second-quarter earnings in late July could be a strong catalyst for AMD stocks.
Xilinx acquisition a potential game-changer
High-profile acquisitions could be a bull’s eye, but investors should definitely be intrigued by AMD’s move to acquire Xilinx (XLNX) – Get Report, the leader in programmable logic chips used in data centers, machine learning, 5G, edge computing and more.
The deal is expected to close by the end of the year and could be just the catalyst the stock needs to get going.
There is a lot of positive to this strategic move, as it will increase AMD’s total addressable market to $110 billion and will not add a ton of debt to the company’s balance sheet.
The deal could be a game-changer for AMD as it will enable more growth in the cloud data center market and diversify the company’s revenue streams.
While this deal still has some regulatory hurdles to overcome, it’s clear that AMD is currently generating a ton of money and using it aggressively to develop a truly industry-leading product portfolio.
While AMD stocks may fall in the near term due to market volatility, a dip to the 200-day moving average could be a great place to add stock to jump back to $100 later this year.
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