Is this the year of Advanced Micro Devices (AMD)?
Well, it could have been said last year was, too, until its stock plummeted about 50%. But this year may be different, as the company is making headlines for all the right reasons.
AMD announced Monday that it has formed a strategic partnership with Samsung that will put the chipmaker’s Radeon graphics intellectual property into future systems on a chip for smartphones and mobile devices. On the “surprising” news, Rosenblatt analyst Hans Mosesmann reiterated a Buy rating on AMD stock with a $42 price target, which implies nearly 50% upside from the stock is currently trading. (To watch the analyst’s track record, click here).
AMD had revenue of about $6.5 billion in 2018, so the Samsung deal is actually not large by its standards. Mosesmann estimates “AMD could do ~$300 million in royalty payments (annually) from Samsung for the duration of the deal,” which he believes will begin in 2021. If this holds, Samsung revenue would by less than 5% of yearly revenue.
This is similar to AMD’s involvement in the Frontier supercomputer. While AMD made headlines when it was tasked by the US Department of Energy to (with Cray) develop the world’s fastest supercomputer, the actual revenue impact will not be large.
Though the revenue impact of the supercomputer contract will not significantly power the stock, what it does show is increased confidence in AMD, and puts on full display the company’s technology. This is also similar to the Samsung deal, which shows AMD’s flexibility and the ability to adapt and create chips for new markets.
The Samsung announcement comes only a week after AMD’s keynote at the Computex conference where the company announced its long-awaited new line of Ryzen 7nm processors. The 7nm processors come with higher processing power but lower energy intake, providing for more efficiency and cost-savings. But seemingly the most notable piece of news from the event was that the company said its Ryzen 9 3900X beat Intel’s i9-9920X by 16% in a performance test, while priced at less than half its rival.
All in all, AMD continues to make news as it innovates and extends beyond its normal product lineup. The Wall Street community expects its stock to continue rising as new innovations spurs increased revenue. TipRanks analysis of 21 analyst ratings show a consensus Moderate Buy rating with 13 analysts saying Buy, seven recommending Hold and one suggests Sell. The $30.31 average price target represents a 10% increase from current levels. (See AMD’s price targets and analyst ratings on TipRanks)