History Says Advanced Micro Devices (AMD) Set to Win Key Market Share in x86 CPUs

Rosenblatt's Hans Mosesmann offers his bullish two cents on AMD as he forecasts rival INTC trailing dangerously behind in the CPU playing field.

In the battleground of the CPUs, with Advanced Micro Devices (NASDAQ:AMD) in one corner and Intel in the next, one analyst points out key takeaways in AMD’s corner. Rosenblatt analyst Hans Mosesmann chimes in following Taiwan’s Computex conference held last week, which put EPYC2 7nm server chips in the limelight.

Additionally, the analyst draws attention to the INTC management team’s news of not dismissing the idea of forfeiting share to the tune of double digits in x86 server, notebook, as well as desktop segments. Mosesmann’s conviction boils down to what “implications” lie in store for AMD and rival Intel- an upshot he anticipates will not only be substantial but likewise “sustainable for years to come.”

Both companies approach a cycle that witness AMD shifting over to 10-nanometer (nm) chip production and Intel stalling mass-producing chips that utilize 10-nm chip manufacturing technology until some point next year. To put it bluntly, Intel is simply “falling behind in process technology,” as far as Mosesmann sees the bigger picture.

“History suggests AMD can capture important market share in x86 CPUs as seen in 2006 with ~25% of the market when AMD had a competitive CPU while Intel still enjoyed process technology supremacy,” asserts the analyst.

Here’s why Mosesmann gives AMD the clear competitive edge with its Zen cycle over Intel’s slate (especially when it comes to servers): “The current AMD Zen cycle is disruptive because architecturally it is more advanced than Intel’s current offering particularly in servers. The possibility of 25% AMD unit share (or conservatively 20%-dollar TAM), is in our view likely.”

Mosesmann sees AMD playing it smart with such a quick switch over to 7nm, commending the “pre-emptive action” as its rival is found under hot water at 10nm. This indicates that “for the first time in history that Intel will be behind the major foundries by 6-18 months in an area of Moore’s Law the company perfected,” continues the analyst, who believes this could bode quite poorly for Intel: “The structural repercussions of falling behind in process technology could have devastating ramifications for Intel’s business model and we speculate could take out the low-end of the current 55%-65% gross margin long term model range.”

With a 10% share capture of a monster $50 billion x86 market, soaring at $5 billion in sales, AMD’s CPU business on its own legs has the potential to realize around $1.20. When AMD hits $10 billion in sales, or a 20% share capture, the company’s EPS would soar past $2.50, and the analyst believes “GPU and custom business would be additive.” Beyond the scope of interplay between 7nm and 10nm, the analyst bets AMD is poised to reach x86 share within the upcoming two to three years, or 20% to 25%.

Notably, the analyst rates AMD a Buy with a $27 price target, which implies a close to 70% upside from current levels. (To watch Mosesmann’s track record, click here)

TipRanks suggests caution has Wall Street fairly divided in its expectations on AMD. Out of 17 analysts polled in the last 3 months, the bulls rule the majority, with 9 rating a Buy on the chip giant, 6 maintaining a Hold, and 2 issuing a Sell.

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