Advanced Micro Devices (AMD) is making headlines this week, as news broke of a joint venture with Cray to develop the world’s fastest supercomputer for the US Department of Energy. Named Frontier, it is set to be delivered in 2021 and expected to produce mind-boggling performance of 1.5 quadrillion calculations per second. To put it in context, the processing power of one Frontier is equal to the next 160 fastest supercomputers, and will encompass more than 7,000 square feet of space.
Nomura analyst David Wong sees this as a clear win for AMD stock, as he maintains his Buy rating and $33 price target, which implies nearly 20% upside from current levels. (To watch Wong’s track record, click here)
While Cray is a developer of supercomputers, AMD will provide EPYC CPUs and Radeon Instinct GPUs, and also a customized Infinity Fabric. Wong believes the contract is valued at more than $600 million, with AMD expecting revenue in 2021. Though not a significant revenue generator, Wong says it “underscores several important elements of our AMD investment case,” including market share momentum in servers and penetration of data center GPU market.
Between March 2018 and March 2019, Mercury Research estimates AMD’s server processor unit market share increased from 1.2% to 3.5%. This comes before the company’s launch of its 7nm Rome Data center chips, which Wong says is on track to ship this quarter. New product additions should continue to help AMD gain market share, while also adding to revenue gains. Wong points out that AMD’s guidance is expected sales to rise steadily, as he expects “AMD to resume gaining sequential server market share in the June 2019 quarter and into the back half of the year.”
Speaking on Radeon Instinct, Wong estimates “sales for data center applications were to $80-100mn in the March 2019 quarter and perhaps $100-120mn in the December 2018 quarter, based on comments from AMD’s earnings call.” The analyst thinks AMD “may have increased its revenue share to the 10-15% range in the data center GPU market,” after NVIDIA reported $679mn its data center segment in its most recent quarter.
All in all, excitement is brewing for AMD stock in 2019. The company is expected to launch a slew of new products, including its 7nm chip. Investors are clearly betting that the stock has substantial growth potential ahead, with shares rising nearly 50% year-to-date.
TipRanks analysis echoes the positive sentiment, with a consensus Moderate Buy rating. Out of 21 analysts polled in the last 3 months, 13 are bullish on AMD stock, 7 remain neutral and one is bearish. The $30.76 average price target represents a 13% increase from the stock’s current value. (See AMD’s price targets and analyst ratings on TipRanks)
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