Shares in chip maker Advanced Micro Devices, Inc. (NASDAQ:AMD) have soared in the last few days from $10.50 to $13.63, as the graph below clearly shows. It wasn’t just the release of better-than-expected 4Q16 results that pushed shares higher: it was apparent confirmation of a much-anticipated deal between AMD and Intel, talk of which has been swirling around the market for months
Kyle Barnett of Hardocp.com has just unofficially confirmed that an AMD/Intel licensing deal for AMD graphics processing unit (GPU) tech has already been signed. Apparently the first product will be a multi-chip-module (MCM) Kaby Lake processor designed for the entry-to-mid level performance segment.
Barnett says his info is ‘definitively correct’ but that the deal has not showed up in the most recent earnings reports because so far there have been no payments. According to Barnett, the financial impact will become clear later in the year. He also believes that we can look forward to more collaboration between AMD and Intel on the graphics side.
Why the deal is so significant?
Intel is AMD’s big rival. They may already be partners- AMD licenses the core x86 chip design from Intel- but in many ways Intel is still a fierce competitor for AMD which only recently developed the tech required to compete with big names in the market such as Intel and Nvidia. Under the operational focus of its new CEO, Lisa Su, AMD is set to release Ryzen, its new central processing unit (CPU), in early March, while its high-end GPU, Vega, is due to be released in the first half of this year.
AMD could also make a serious financial gain from an Intel partnership. Indeed, the deal could help AMD with its debt load and R&D funding. This is important- in 4Q16 AMD announced a loss per share of $0.06 up from a loss of $0.13 last year. And if AMD suffers slightly in terms of market share by licensing its tech to Intel it is still very likely to be worth the financial possibilities and positive reviews that the partnership could bring.
From Intel’s side, Intel can use AMD’s patented graphics technology to protect itself from the threat posed by Nvidia- especially as it is highly unlikely that Intel and Nvidia will be signing another agreement any time soon. The cross-licensing agreement signed by the two parties back in 2004 went sour after Intel sued Nvidia in 2009. The dispute was finally settled in 2011 for $1.5 billion and the two companies remain on very bad terms.
Other stock movers
The stock has also benefited from a very bullish Barron’s article which suggests that as AMD’s rolls out new products the company’s share price could double over the next year. Bearing in mind that share prices have already quadrupled in the last year and you can see why this is an exciting time to be an AMD shareholder.
Financial accountability engine TipRanks reveals that the analyst consensus rating for AMD is moderate buy based on analyst recommendations made in the last 3 months. However, the average analyst price target of $10.56 is actually a -22.48% downside from the current share price of $13.63.