AMD's Profitability Will Surge Next Year Thanks to Its New Chips, Analyst Says -- Barrons.com
DOW JONES & COMPANY, INC. 9:47 AM ET 4/8/2019
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Advanced Micro Devices' profit margins will rise next year as it rolls out new wave of more-expensive chips, according to Bank of America Merrill Lynch.
AMD makes processors that act as the main computing brains for PCs, servers, and graphics cards, competing with Intel(INTC) and Nvidia(NVDA) .
The back story. AMD's stock has risen 57% so far this year through Friday, as investors grow optimistic about the company's product pipeline later in 2019.
Late last year, AMD unveiled its next-generation seven-nanometer (NM) server chip, called Rome, which will be launched in mid-2019. Intel's(INTC) first chips based on 10 NM technology won't ship until the 2019 holiday season. Smaller- nanometer manufacturing processes have historically allowed semiconductor companies to create faster, more-power- efficient chips.
What's new. BofA Merrill Lynch chip analyst Vivek Arya raised his price target for AMD stock on Monday, predicting the chip maker's profit margins will rise significantly next year. He also reiterated his Buy rating for the company.
Read more: AMD's and Google's Relationship Is Just Getting Started
"With the rollout of 7nm based Rome servers in 2H, AMD will undeniably have a lead in manufacturing-node versus INTC that for the first time ever," he wrote.
The analyst said AMD's new products -- including more expensive server chips -- will drive its margins higher. He forecasts the company's gross profit margin will rise to 43.5% next year from 38.5% last year.
"A core tenant of our bullish thesis of late has been the underappreciated impact of new product mix on AMD's blended ASPs (and thus sales)," he wrote.
Looking ahead. Arya raised his price target for AMD to $35 from $30, representing a 22% upside to the current stock price.
In December, Barron's suggested AMD could be a big winner in the cloud-computing server-chip market in 2019 because it has a promising lineup of products scheduled for release.
AMD stock was down 1% to $28.70 in Monday morning trading.
Write to Tae Kim at tae.kim@barrons.com
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04-08-190947ET
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