- AMD has forever been the runner up in the microprocessor race
- Given the general global problems with supplies of processors AMD’s time might well have come
- AMD stock is up 5% over two days on the back of Goldman Sachs and other analyst predictions that this will happen
Advanced Micro Devices Inc (NASDAQ: AMD) has long been seen as the distant runner-up to Intel in the microprocessor race. This is unfair, undoubtedly, but reputations can be tough to shift. That reputation not being aided by the manner in which AMD, back in history, struggled too hard to keep up with Intel in that microprocessor chip race.
AMD stock is up 5% cumulatively yesterday and today pre-market. Part of this is the hope that the merger/takeover with Xilinx is going to go through in this coming first quarter. But rather more if it is down to changing analyst views of AMD’s prospects.
Over the past 5 years, AMD stock is up some 1000% percent and more. In 2018 it was trading at $12 and the like, now it’s moving through $150. More recently, 10 months back, AMD was in the $70 to $80 range, meaning a 100% rise to today’s price since then.
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The big question, of course, is what is to happen in the future? Will we see this rerating continue or has it run its course? Which is where we should turn to the analysts perhaps for some guidance on AMD’s future.
Rosenblatt’s has AMD as one of its top picks for the semiconductor sector but that’s not all. They’re also predicting the “mother of all super-cycles” as artificial intelligence becomes mainstream. Given that this is not just processor intensive, processors are what AI are, they might have a point there. They are in fact predicting a doubling in processor growth moving forward.
It’s worth noting that this is unlikely to be a field in which there’re going to be new upstart competitors. China has been subsidising attempts and they’re all well behind the tech curve. It’s just difficult to do all of this right, at scale, and still keep up with the leading edge. The moat around the industry – that favourite phrase of Warren Buffett’s – is simply the trade knowledge of how to do this right.
That was back on 20 December, that Rosenblatt’s guide to AMD. More recently there’s the Goldman Sachs look at the sector. They have AMD as their stock in the sector most likely to benefit from the wider industry conditions. They predict that it will continue to grow market share and so gross profit margin.
Worth pointing out that the actual manufacturing cost of s chip is near nothing, a few cents of silicon. It’s the design work, then setting up the fab to make it, which costs the billions. So, those marginal extra sales are hugely profitable.
There is also, obviously, that simple processor shortage at present. Manufacturers are still complaining they can get chips – meaning that no one is discounting their production. Further, any long-term orders are being settled and good and high prices.
That market background does imply that AMD should be having a good time of it. The big question is whether this is going to continue. Analysts think yes but what matters to the AMD stock price is what everyone else thinks about the idea.