Nomura: AMD's Upcoming Products Can Drive Revenue Momentum, Operating Leverage

Advanced Micro Devices, Inc. AMD is credited for its strong product momentum in recent years, which has helped it to challenge Intel Corporation INTC's pole position.

The Analyst

Following AMD's gaming wins with Microsoft Corporation MSFT, Alphabet Inc GOOGL GOOG and Sony Corp SNE, Nomura analyst David Wong reiterated a Buy rating on AMD with a $33 price target. 

The Thesis

AMD's strong product launches over the last three years have helped the company shore up its top- and bottom-line, while also helping to grow its market share in data center, notebooks and desktop processors, Wong said in a Tuesday note. (See his track record here.) 

AMD's data center microprocessor unit share rose from sub-1% at the end of 2016 to 4%by the end of 2018, with ASP doubling to above $600 over the period, the analyst said. The desktop microprocessor share climbed from below 10% in mid-2016 to about 17% in March 2019, he said.

Nomura expects the company's strong 7nm pipeline and recent next-gen console gaming wins to help it maintain its microprocessor momentum and support its semi-custom revenue stream, Wong said. 

AMD and Microsoft recently announced the next-gen Xbox "Project Scarlett," powered by Ryzen Zen 2 CPU technology and Navi next-gen Radian RDNA graphics architecture, due for launch in the 2020 holiday season, the analyst said. 

Sony announced in April that its next-gen PlayStation will have a processor based on a Ryzen Zen 2 CPU and Navi GPU, and Google said the back-end of its online gaming platform Stadia will feature a custom AMD-based GPU.

"In addition, we believe AMD has ample opportunity to drive further growth through market share gains in discrete GPUs for PCs and continued penetration of the market for datacenter GPUs and accelerators," Wong said. 

The Price Action

AMD shares have rallied nicely in June, moving out of the $27-$28 trading range and gaining 18% since the start of May.

The stock is now closing in on Nomura's price target.

AMD shares were down by 0.34% at $32.30 at the time of publication Wednesday. 

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