Advanced Micro Devices, Inc. (NASDAQ:AMD) has been riding high on its product innovation, and shares received a further boost from a Dec. 14 announcement that the company will be added to the Nasdaq 100 Index.
The Analyst
RBC Capital Markets analyst Mitch Steves has a Buy rating on AMD with a $34 price target, suggesting roughly 81 percent upside from current levels.
The Thesis
AMD's addition to the blue-chip index, though not making a difference for the near-term or long-term fundamentals, will likely move the stock higher, Steves said in a note. This will go into effect the morning of Dec. 24.
Even as high-beta stocks are pressured by the macro uncertainty, Steves said the debate around AMD is centered around gaming growth, server ASPs and hyperscale impact.
AMD is unlikely to return to double-digit growth in the near-term following the crypto-induced weakness, as used GPUs cause negative estimate revisions, Steves said.
The analyst sees gaming as a second-half story.
Steves estimates server ASPs of $5,400, with investors bracing for a $5,00-$6,000 range for the metric. While noting that AMD's quarterly server run-rate is about $50 million compared to the $10 billion total x86 server opportunity, the analyst said every 4 million units would equate to $2 billion in high-margin revenue.
RBC expects hyperscale growth to be come in at 2-3 percent in 2019. There have been diverging opinions among bulls and bears, with the former suggesting share gains are important even if it comes at the expense of revenues, given the macro uncertainty. The bears, however, don't attach much significance to share gains in a muted market.
Price Action
AMD shares have soared about 83 percent year-to-date. The stock was up 4.1 percent to $19.61 Tuesday afternoon.
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