Advanced Micro Devices, Inc. (NASDAQ: AMD) has been one of the best-performing stocks in the past two years, going by the more than 100% gains registered between 2019 and 2020. However, in 2021 its sentiments and fortunes have taken a hit, going by the 10% pullback from record highs.
The pullback has come at the back of the broader market, powering to record highs, affirming underperformance in the semiconductor giant. The big question remains, will the slump persist, or will Advanced Micro Devices bounce back and power back to record highs?
A closer look at the underlying fundamentals have been behind the chip giant’s solid sentiments in the market. It is clear that they are still intact, and nothing has changed. Likewise, the pullback might as well be a minor correction from where more bulls could come in and help steer the stock back to all-time highs.
Below are some of the reasons why Advanced Micro Devices is well-positioned for an impressive 2021 after the recent correction.
Ryzen MobileTM Processor competitive edge
The Ryzen Mobile processors are well-positioned to strengthen AMD’s edge in the industry. The company is already attracting big deals as laptop manufacturers use the chips to power their devices. Currently, there are over 150 laptops signed up for the AMD Ryzen processors.
Having already accrued sufficient market share in the desktop PC space, AMD has also set sights on taking over the mobile space with the Ryzen. Unveiled at the end of January, Ryzen Mobile chips should help move the needle as they are already selling like hot cake.
Booming PC market
A booming PC market that has been stagnant in recent years also looks set to work in AMD strengths in 2021. With smartphones and other mobile devices sales appearing to have hit saturation levels, the focus is increasingly shifting towards PCs.
The working from home trend and students studying from home amid the pandemic are some of the developments likely to fuel strong PC demand, conversely, work in AMD strength. Initial estimates indicate that PC sales fuelled by laptop demand could increase by between 4.8% and 13% in 2021.
Such an increase should benefit AMD a great deal. With more than 150 laptops having signed up to use Ryzen processors, the chipmaker looks set to generate significant sales on this front as PC sales edge higher. Revenue growth is one factor that should help strengthen the company’s sentiments in the market; conversely, it fuels a buying spree of stock after the recent correction.
Booming server chips business
Late last year, AMD inked a deal to acquire Xilinx in a $35 billion deal. The acquisition is poised to expand and strengthen its business in the sale of chips for powering servers. Likewise, the chipmaker is more than equipped to flex its muscles in the $20 billion data center chip market, expected to be a key driver of the bottom-line and top-line growth.
While the company is poised to gain more than 30% in share in the high-end desktop and notebook market, it is also well-positioned to gain more than 25% market share in the server market given its strength in Ryzen chips.
Revenue growth prospects
AMD revenue grew by 45% in 2020 to record highs of $9.76 billion as earnings per share doubled to $1.29 a share. In contrast, analysts expected the company to report sales of $8.4 billion and $1.05 a share for 2021.
Going by the estimates, it is clear that AMD has already topped Wall Street estimates. Given the momentum in the core business, it is clear that the company is on its way to topping revenue and earnings by a considerable margin in 2021.
Consensus expectations are already calling for a 30% plus climb in revenues to highs of $13.5 billion. Similarly, earnings are expected to increase by more than 50% to $2 a share.
Revenue growth will mostly be driven by growth in the enterprise segment, which deals in the sale of server chips, CPUs, and graphics processors for gaming consoles.
It is even possible that these earnings estimates are conservative and that AMD could post much higher sales and earnings given the strong demand for its chips.
AMD is still rated as a strong buy by analysts in Wall Street, given the solid underlying fundamentals. Jefferies analyst Mark Lipacis has a buy rating on the stock with a share price target of $110. The analyst is especially bullish on AMD’s expected gains in the server business with the launch of the 7nm Milan CPUs.
Loop Capital’s Cody G Acree has also initiated coverage with a share price target of $115, as Cowen’s Mathew Ramsay insists on an outperform rating of the stock with a $120 a share price target.
While AMD has come under pressure in 2021, it is early in the game to be concerned about a 10% pullback. Industry fundamentals are still working in favor of AMD, pointing to what could turn out to be another record-breaking year.
AMD is well supported by the Ryzen chips that continue to elicit strong demand on the PC and the mobile front. While the stock has backed off a bit, exposure to the gaming, working from home trend, cryptocurrency mining, and data centers all but affirms AMD growth metrics and prospects. With the company poised to elicit big business with its Ryzen chips, it should generate more sales, conversely, more earnings.
While AMD has struggled to breach the $100 a share level, the upside potential is still intact. Given the solid underlying fundamentals and a positive 2021 outlook, it could be a matter of time before the stock takes out the $100 mark.
Expectations of strong demand for the company’s chips and strong full-year results should help strengthen investor sentiments in the stock and conversely fuel another leg higher.