Nasdaq AMD

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Advanced Micro Devices (AMD) is a leading semiconductor company with two main segments.

The Computing and Graphics segment includes desktop and notebook processors and chipsets, discrete and integrated graphics processing units, data center and professional GPUs and development services; and the Enterprise, Embedded, and Semi-Custom segment includes server and embedded processors, semi-custom System-on-Chip products, development services, and technology for game consoles. This technology company was founded in 1969 and is based in California.

Advanced Micro Devices has a very strong balance sheet, robust growth, and delivered a solid Q3 2021 earnings report, but there is one problem that is a key hurdle now for investors, its shares are trading at a large premium. Valuation concerns are the key reason that I am bearish on AMD stock. (See Analysts’ Top Stocks on TipRanks)

Advanced Micro Devices: Latest Business Highlights

Some of the latest key business news include the following.

Advanced Micro Devices won multiple supercomputing installations including Argonne National Laboratory’s new Polaris supercomputer, there has been a partnership with Microsoft (MSFT) to bring powerful computing to users with Windows 11, powered by Ryzen processors and Radeon graphics, plus there has been the launch of new products such as the Radeon RX 6600 XT graphics card built on breakthrough RDNA 2 gaming architecture.  

Investors also got information about AMD’s 26th annual Corporate Responsibility Report, which highlighted major accomplishments from the previous year and set new goals through 2025 and 2030.

The technology company reported also that “Growing preference for EPYC™ processors resulted in the number of AMD-powered supercomputers growing 3.5x year-over-year” as “Customers across the industry continue to expand their use of AMD EPYC™ processors and AMD Instinct™ accelerators to power cutting-edge research needed to address some of the world’s biggest challenges in climate, life sciences, medicine, and more.”

Another important announcement made was a partnership with IBM (IBM).

“Our customers have a high demand for computing processing power and the new 3rd Gen AMD EPYC processors provide the high levels of performance and scalability we were looking for,” said Suresh Gopalakrishnan, vice president, IBM Cloud. “Our collaboration with AMD has helped us deliver our highest core counts and bandwidth ever available for IBM Cloud customers, to offer top market performance for today and tomorrow’s demanding workloads.”

Q3 Earnings

Advanced Micro Devices delivered a very strong Q3 2021 earnings report. Strong fundamentals and earnings are key catalysts to support the stock price reaching higher levels, but a lot of caution is suggested.

As AMD mentions on its investor relations webpage it has the “goal to build a best-in-class growth company.”

Key highlights of the Q3 2021 earnings report support this goal at present. Revenue increased 54% year-over-year, gross margin grew more by more than 400 basis points year-over-year to 48%, operating income reported was $948 million, up 111% year-over-year compared to operating income of $449 million for Q3 2020.

Net income was $923 million, up 137% year-over-year, and earnings per share were $0.75, up 134% year-over-year. In Q3, the figures for net income and EPS were $390 million and $0.32, respectively.

Focus on ESG

Advanced Micro Devices reported that its 26th annual Corporate Responsibility Report featured a strong focus on “four key environmental, social and governance (ESG) strategic focus areas that guide the company’s purpose-driven approach to high-performance computing: digital impact, environmental stewardship, supply chain responsibility, and diversity, belonging and inclusion.”

Valuation

Data from Simply Wall Steet shows that AMD stock is pricey based on its P/E Ratio (47.9x) compared to the U.S. semiconductor industry average (31.3x).

Other key financial metrics suggest that AMD stock is trading at a large premium now. AMD has a PEG Ratio of 1.3x, with a figure under 1.0 considered to be attractive, and its PB Ratio of 25.4x compared to the U.S. semiconductor industry average 4.9x.

Wall Steet’s Take

Turning to Wall Street, Advanced Micro Devices has a Moderate Buy Consensus based on 14 Buys, eight Holds, and zero Sell ratings. The average AMD price target of $141.80 represents a 5.4% downside potential.

Disclosure: At the time of publication, Stavros Georgiadis, CFA did not have a position in any of the securities mentioned in this article.

Disclaimer: The information contained in this article represents the views and opinion of the writer only, and not the views or opinion of Tipranks or its affiliates, and should be considered for informational purposes only. Tipranks makes no warranties about the completeness, accuracy or reliability of such information. Nothing in this article should be taken as a recommendation or solicitation to purchase or sell securities. Nothing in the article constitutes legal, professional, investment and/or financial advice and/or takes into account the specific needs and/or requirements of an individual, nor does any information in the article constitute a comprehensive or complete statement of the matters or subject discussed therein. Tipranks and its affiliates disclaim all liability or responsibility with respect to the content of the article, and any action taken upon the information in the article is at your own and sole risk. The link to this article does not constitute an endorsement or recommendation by Tipranks or its affiliates. Past performance is not indicative of future results, prices or performance.

Nvidia (NASDAQ: NVDA) crushed Wall Street's expectations when it released its fiscal 2022 third-quarter results on Nov. 17, with its record numbers and impressive guidance sending the stock up 8% to a new all-time high post the release.

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InvestorPlace - Stock Market News, Stock Advice & Trading Tips

InvestorPlace - Stock Market News, Stock Advice & Trading Tips

The recent fiscal third-quarter results from the giants of the semiconductor industry, including Nvidia and AMD, left investors cheering. At the same time, Intel's (INTC) investors were disappointed by the company's mixed bag of third-quarter results.

It is interesting to see the different directions taken by these semiconductor companies, with Intel investing more in its foundry business while AMD continues to see higher traction in its third-generation EPYC processors. In contrast, Nvidia continues to expand its artificial intelligence (AI) platform offerings by venturing into virtual reality with its Omniverse platform.

Using the TipRanks Stock Comparison tool, we will compare two such chip-making companies, Nvidia and AMD, and examine how Wall Street analysts feel about these stocks.

Nvidia (NVDA)

Nvidia’s outstanding Q3 results and the emerging details about the Omniverse seemed to have spiked investors’ interest in the stock. Indeed, the stock has jumped 8.5% in the past five days.

The company posted record revenues of $7.1 billion in Q3, surpassing consensus estimates of $6.83 billion. The rise in revenues was fueled by a surge in demand for Nvidia’s AI platform, especially across hyper-scale and cloud computing.

Adjusted earnings came in at $1.17 per diluted share, an increase of 60% year-over-year, beating the consensus estimate of $1.11.

Jensen Huang, Nvidia’s Founder and CEO, referred to the Omniverse virtual reality (VR) service offering in its press release, saying, “Omniverse will be used from collaborative design, customer service avatars and video conferencing, to digital twins of factories, processing plants, even entire cities.” (See Analysts’ Top Stocks on TipRanks)

Referring to the new Omniverse offering, Jeffries analyst Mark Lipacis said he is “impressed with the company's ability to introduce new applications for its parallel processing ecosystem.” As a result, the analyst increased his estimate for earnings per share in 2025 from $12.50 to $16.40 “to incorporate revenues from its new Omniverse virtual reality service offering.”

Moreover, the analyst expects that the potential Omniverse total addressable market (TAM) from creator licenses could be worth $80 million, based on NVDA’s estimate of charging $2,000 annually for each user for a creative development license. The company expects to charge $1,000 every year per avatar and anticipates its user base could be 40 million.

Analyst Lipacis believes that “virtual reality will find its way into numerous other applications not yet fully comprehended by the market.”

As a result, the analyst raised the price target for Nvidia from $260 to $370 (12.2% upside) and reiterated a Buy on the stock.

Lipacis also felt heartened by CEO Huang’s belief that the success of the Omniverse over the near-term “will be driven by 1) developer support, 2) enterprise adoption, and 3) degree of collaboration among creators.”

The rest of the Street echoes Lipacis’s view, with a Strong Buy consensus on Nvidia, based on 22 Buys and 2 Holds. The average Nvidia price target of $359.09 implies 8.9% upside potential to current levels.

Advanced Micro Devices (AMD)

Shares of AMD have soared 29.7% in the past month, driven by strong Q3 results and some key announcements at its Accelerated Data Center (ADC) Day earlier this month. According to Jeffries analyst Mark Lipacis, a key announcement by AMD on ADC day was that Meta Platforms (formerly Facebook) (FB) would be AMD’s customer when it comes to EPYC Central Processing Unit (CPUs).

The analyst views this announcement as “significant because FB strives to build environmentally conscious datacenters by using direct and evaporative cooling systems and is therefore highly focused on higher performance / Watt from its processors.”

Lipacis perceives FB’s selection of AMD as a “signal that AMD's Zen 4 CPU (Genoa) materially outperforms Intel's CPU offerings on this metric.”

At its ADC Day, according to the analyst, the chip company also unveiled a 3D chiplet technology for its EPYC server CPU, available in the first quarter of next year. Besides for this, AMD also announced Genoa and Bergamo (Zen 4) products on 5 nanometers (nm) to be launched next year and in the first half of 2023.

Genoa and Bergamo will have a high core count, ranging from 96 cores to 128 cores. Analyst Lipacis had written in another report that higher core counts are critical for efficient computing of cloud service providers (CSPs). (See Top Smart Score stocks on TipRanks)

Furthermore, the analyst pointed out that considering Intel’s Ice Lake server processor is at 40 cores, Lipacis believes that “AMD continues to gain server CPU share from Intel.”

The analyst added, “FB selecting AMD is a significant validation of AMD's CPUs, as FB focuses on environmentally conscious DC [data center] cooling systems, and consistent with our accelerating [market] share gains thesis for AMD.”

As a result, the analyst reiterated a Buy and a price target of $145 (6.7% downside) on the stock.

The rest of the Street has sided with Lipacis with a Moderate Buy consensus on AMD, based on 14 Buys and 8 Holds. The average AMD price target of $141.95 implies 8.6% downside potential to current levels, suggesting that the stock could have overshot its valuation.

Bottom Line

While analysts are bullish about Nvidia, they are cautiously optimistic about AMD. It remains to be seen how Nvidia's foray into Omniverse plays out.

In contrast, AMD seems to be snapping up Intel's market share with its EPYC range of processors and continues to innovate further.

Based on the upside potential over the next 12 months, Nvidia does seem to be a better Buy.

Disclosure: At the time of publication, Shrilekha Pethe did not have a position in any of the securities mentioned in this article​.

Disclaimer: The information contained in this article represents the views and opinion of the writer only, and not the views or opinion of TipRanks or its affiliates, and should be considered for informational purposes only. TipRanks makes no warranties about the completeness, accuracy or reliability of such information. Nothing in this article should be taken as a recommendation or solicitation to purchase or sell securities. Nothing in the article constitutes legal, professional, investment and/or financial advice and/or takes into account the specific needs and/or requirements of an individual, nor does any information in the article constitute a comprehensive or complete statement of the matters or subject discussed therein. TipRanks and its affiliates disclaim all liability or responsibility with respect to the content of the article, and any action taken upon the information in the article is at your own and sole risk. The link to this article does not constitute an endorsement or recommendation by TipRanks or its affiliates. Past performance is not indicative of future results, prices or performance.

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