AMD's Interest In Xilinx 'Strategic': Here's Why

Advanced Micro Devices, Inc. AMD is reportedly in talks to buy programmable chip maker Xilinx, Inc. XLNX for about $30 billion.

The AMD Analyst: Rosenblatt Securities analyst Hans Mosesmann has a Buy rating on AMD with a $120 price target.

The AMD Takeaways: A Xilinx deal makes sense for AMD, Mosesmann said in a Friday note.

The valuation appears reasonable given that Xilinx shares have been under pressure due to Huawei and trade restriction issues; lumpiness in data center; and socket losses in 5G base stations to ASICs, the analyst said.

Xilinx is fundamentally healthy and has been a top three pick for Rosenblatt in 2020, he said. 

Related Link: Why Moody's Is Upgrading AMD's Credit Rating

The data center market has been in massive flux in the last two to three years, leading to offloading dynamics, 3D packaging, HBM memory acceleration and more tailoring or customization, or ASICs, Mosesmann said.

This is why NVIDIA Corporation NVDA purchased Mellanox and has announced a deal to buy Arm Holdings, and Marvell Technology Group Ltd. MRVL has made a disruptive move to stress its ASIC position and accelerate its 5nm/3nm product portfolio, the analyst said.

"So, AMD's move is strategic and at the same time necessary to counter data center dynamics that a strong CPU and GPU portfolio is not alone enough to stay in the game longer term."

Xilinx brings exposure, relationships and secular power for AMD in networking; acceleration; storage growth vectors; edge strength; and diversification into 5G, industrial, and automotive segments, Mosesmann said.

These dynamics would add as much as 50% total addressable market opportunity in dollar terms for AMD, the analyst said.

AMD Price Action: At last check, AMD shares were slipping 4.41% to $82.70, while Xilinx shares were soaring 12.7% to $119.45.  

Related Link: How AMD Can Hit This Analyst's Bull-Case Price Target Of $135