Favorable commentary on Zacks


On February 24, AMD announced that its board of directors approved a new $8B share repurchase program. The new authorization is in addition to the $4B share repurchase program announced in May, under which the company has repurchased approximately $3B of shares of AMD common stock.

Bernstein upgrades AMD to Outperform with $150 price target: Analyst Stacy Rasgon wrote in a research note that the combination of continued stellar execution, increasingly bankable earnings power, and a recent sizeable pullback made the valuation downright attractive. So the analyst is, for the first time in almost a decade, pulling the trigger and upgrading the stock to Outperform.

Rasgon noted that since the November peak the stock has fallen 30%, entirely due to the multiple and now trades under 30-times near-term EPS and 20-times a likely $5-plus in earnings power, approaching the cheapest in 5 years. Overall, the analyst believes the stock is looking “increasingly attractive for investors who might have continued to sit on the fence, likely for too long.”

Of course, I couldn’t agree more. And the analyst didn’t even consider the relative valuation to AMD’s only peer, NVIDIA.

The Rise of a Duopoly in HPC and AI

AMD has strengthened its position in the semiconductor market on the back of its evolution as an enterprise-focused company from a pure-bred consumer PC and gaming chip provider.

And after another beat-and-raise quarter – where the Lisa Su starship offered guidance for Q1 EPS that was 30% above consensus Street estimates – the stock is on its way back to the old highs.

AMD has emerged as a strong challenger to NVIDIA’s (NVDA Quick QuoteNVDA - Free Report) dominance in the GPU (graphic processing unit) market based on its Radeon technology. Launch of 7 nanometer (nm)-based AMD Radeon RX 5700-series gaming graphics card family featuring RDNA architecture, high-speed GDDR6 (Graphics Double Data Rate type 6) memory and support for the PCIe 4.0 interface, has helped the company increase presence among gamers.

Since the technology of GPU chips for gaming has driven the R&D for high-performance computing (HPC) and artificial intelligence (AI), AMD has joined NVDA in the “category of two” where enterprises and scientific research institutions must have their technologies to crunch large amounts of data at hyper-speed.

I’ll reiterate my stance on AMD: As long as NVDA can trade for over 15X sales (currently 19.5X next year’s $31.5B), then AMD is a steal under 10X sales (currently 6.4X next year’s $22B). That’s why it has the green light to go for the old highs.

(end of TAZR commentary from Feb 2)

Since then, revenue estimates for AMD next year have been boosted to over $24 billion. So with the stock market drop, AMD is now trading for under nearly 5 times sales at $105. Meanwhile, NVDA’s consensus revenue forecast for next year has risen to $39.5 billion, which brings its price/sales ratio down to 13.5X at $215.

As I told Zacks Ultimate members in a private member update recently (before Russia-Ukraine), either NVDA is going to come down, or AMD is going for new highs. So far, they’ve both come down and the P/S spread has narrowed. Which makes AMD even more of a buy right now.

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