AMD Amends Wafer Supply Deal with GlobalFoundries

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Global semiconductor company Advanced Micro Devices, Inc. (AMD) amended its wafer supply agreement with the American chip manufacturer GlobalFoundries Inc. (GFS).Shares of AMD closed up 1.6% at $146.14 on December 23. Meanwhile, GFS rose 1.2% during extended trading session yesterday, following the news.

Revised Deal

According to the revised deal, AMD will now buy $2.1 billion worth of wafers from GFS between 2022 and 2025. Under the previous deal, AMD was to buy $1.6 billion worth of wafers between 2022 and 2024.

The companies also agreed to the new pricing terms and modified the pre-payments for the wafers in 2022-2023.

GlobalFoundries, which was the manufacturing arm of AMD, was spun-off in 2009, becoming a private entity, and has been AMD’s supplier since then. GFS listed on the Nasdaq in October this year. However, AMD sources most of its chips from Taiwan Semiconductor Manufacturing Co., Ltd (TSM), which is one of the largest chip manufacturers.

Consensus View

Recently, Deutsche Bank analyst Ross Seymore lifted the price target on the stock to $120 (17.9% downside potential) from $113, while maintaining a Hold rating.

According to Seymore, 2021 was one of the best years for the semiconductor industry, with accelerated demand for chips due to global shortages. Looking ahead to 2022, the analyst sees improved supply yielding stronger near-term growth.

Overall, the stock has a Moderate Buy consensus rating based on 14 Buys and 9 Holds. The average Advanced Micro Devices price target of $143.15 implies 2.1% downside potential to current levels.

Hedge Funds

TipRanks’ Hedge Fund Trading Activity tool shows that confidence in AMD is currently Very Positive, as 11 of the Best Hedge Funds increased their cumulative holdings of the stock by 5.4 million shares in the last quarter.

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