This semiconductor company is forecast to grow at a 66.7% rate in 2017 and 80% next year.
Advanced Micro Devices, Inc. (AMD)
From Canaccord Genuity Research
Over the last three weeks, we hosted a series of focused investor meetings with Advanced Micro Devices, Inc.’s (AMD) CEO Dr. Lisa Su in California, Boston and the mid-Atlantic. While initial Ryzen desktop sales and third-party benchmarking data, as well as first Naples server performance data, became public during our roadshow, we were very impressed that Dr. Su’s message to investors remained laser-focused and consistent: is fully committed to delivering a highly-competitive, high-performance CPU and GPU roadmap and executing such that the company garners solid market share in both consumer and enterprise market segments for each.
Following our series of meetings, we leave more confident in our positive thesis, despite the recent stock appreciation and volatility, and continue to gain confidence in 1) AMD re-emerging as a competitive second source to Intel (with leadership in several sub-segments) with an on-track Zen roadmap across relevant x86 central processing unit (CPU) markets including enterprise/gaming desktops, media-focused notebooks and certain server market segments, 2) gradual graphics processing unit (GPU) unit share recovery in low market tiers with Polaris should be supplemented by the Vega launch in higher value tiers, and 3) AMD now being focused to deliver a multi-generational roadmap with the customer backing and foundry partners to sustainably do so.
Modest growth assumptions across a $50B+ total addressable market (TAM) from very low CPU/GPU share levels today drive our estimates materially above consensus, as much skepticism remains. While we recognize roadmap execution and competitive risks remain, we believe risk/reward is still tilted toward the upside and our long-term bullish target of $1.00 in EPS remains attainable by 2020.
We reiterate our BUY rating and raise our PT from $14 to $17. NDR meetings: Key focus topics in our meetings (which we discuss in more detail in this report) included:
• Reaction to and interpretation of initial Ryzen gaming and productivity benchmark results versus expectations, prior AMD products and relevant Intel products
• AMD’s product roadmap, strategy and target market share in the datacenter for both Zen-based server CPUs and Radeon Instinct GPU accelerators. Reaction to initial limited Naples server benchmark data versus Intel.
• Expectations for upcoming Vega GPUs versus the strong current position NVIDIA holds in high-tier gaming GPUs
• AMD’s strategy to engage customers through new product design wins, semi-custom development engagements and further IP licensing opportunities
• What new product growth could mean for corporate gross margin and a path toward material long-term earnings power for AMD
With increased confidence in adoption of AMD’s upcoming product roadmap and the potential positive effect on gross margin, we maintain our above-consensus 2017/18 non-GAAP EPS estimates of $0.12/$0.30. Additionally, we increase our 2018/19/20 bull-case non-GAAP EPS estimates from $0.43/$0.66/$0.90 to $0.47/$0.75/$1.00.
Matthew D. Ramsay and Logan Bender, Canaccord Genuity Research, www.canaccordgenuity.com, 617-371-3711, March 9, 2017