Advanced Micro Devices' biggest business is booming, and it is taking market share from Intel. Due to its technological advantages over Intel chips, AMD sits on huge revenue opportunities. The company is expected to significantly increase computing and graphics revenue by releasing more powerful chips based on more efficient manufacturing nodes.
Advanced Micro Devices shows no signs of slowing down. The chip maker is following several fast-growing technology trends that have driven the company's revenue and profit growth in recent quarters, and these catalysts will not disappear anytime soon.
Simply put, AMD seems to be in the middle of a multi-year growth curve. If you haven't bought this kind of growth stock, now is a good time to buy. Let's take a look at one of the biggest reasons you should consider adding AMD to your stock portfolio.
AMD's CPU market share growth may be the biggest catalyst
Most of AMD's revenue comes from the computing and graphics division, through which it sells Ryzen central processing units (CPU) and Radeon graphics processing units (GPU). The revenue of this department is directly related to the PC market and the health of the data center space. Graphics cards are deployed in the data center space to accelerate workloads.
AMD's computing and graphics revenue in the second quarter increased 65% year-on-year to $2.25 billion, accounting for 58% of total revenue. The company attributes this amazing growth to the average selling price (ASP) and shipment volume of Ryzen processors used in notebooks and desktop computers. According to AMD, the company's revenue share in the client processor market has increased for five consecutive quarters.
The company has witnessed strong demand for high-end processors, such as the Ryzen 9 series, and its shipments have more than doubled year-on-year. At the same time, AMD’s newly launched Ryzen 5000 series notebook processors helped the company record revenue for the seventh consecutive quarter in the mobile processor field.
AMD benefits from higher output and higher pricing in the client processor market. This is not surprising, because this chip maker has been eroding Intel's (NASDAQ: INTC) dominance in the CPU field.
According to data from PC benchmarking provider PassMark Software, AMD withdrew from the second quarter with a 44.1% CPU market share, a good increase compared with 35% in the same period last year. Although Intel has been losing to AMD since the advent of the Ryzen series of processors, it has dominated the rest of the market.
It is also worth noting that AMD's pricing power has increased, leading to an increase in processor ASP. On the other hand, Intel is struggling to cope with the sharp decline in ASP. Chipzilla's desktop computer processor ASP fell 5% year-on-year in the last quarter, while notebook ASPs fell 17% after discounting measures to transfer more products. On the other hand, AMD is taking advantage of the technology and performance advantages of Intel chips to charge a premium for AMD processors. In view of higher shipments, customers are obviously willing to pay.
AMD is likely to take more market share from Intel, because the former is expected to launch the next-generation Zen 4 CPU with a 5nm-based manufacturing process next year. AMD’s current Zen 3 chips are based on the 7-nanometer node, which means that next-generation chips can provide higher computing performance and reduce power consumption.
This is because the transistors on the smaller process nodes are arranged closely together, which makes them more energy efficient and can perform more calculations. More importantly, the shift to a 5-nanometer process will give AMD an advantage over Intel.
Intel’s current Rocket Lake desktop processors are based on the old 14-nanometer process, while AMD uses the modern 7-nanometer process. As a result, AMD can pack more cores into its processor, making it more energy efficient, and at the same time producing superior performance.
Once the Alder Lake desktop CPU is introduced, Chipzilla is expected to switch to a 10-nanometer platform later this year. This may give AMD a headache, because Intel said its 10-nanometer node contains more transistors than AMD’s 7-nanometer process. However, AMD should be prepared to move towards the 5nm process before the end of this year, which will help maintain its advantage over Intel.
Potential for huge financial gains
Compared with Intel, AMD's computing and graphics fields are still small. For example, Intel received $10.6 billion in revenue from its client computing division (CCG) last quarter, more than four times the revenue from AMD's computing and graphics business.
AMD launched the first generation of Ryzen processors in 2017, and they have provided impetus for the computing and graphics business. The revenue of this sector jumped from US$1.97 billion in 2016 to US$3 billion in 2017. In 2020, AMD’s computing and graphics division’s revenue was $6.4 billion, so the business more than doubled in three years.
At the same time, Intel’s CCG revenue in 2020 was US$40.1 billion, only an increase of 22% from the US$32.9 billion at the end of 2016. Obviously, due to the increase in market share, AMD's growth rate is much faster than Intel. More importantly, the scale of Intel's CCG business shows that AMD has a huge opportunity to increase customer processor sales revenue.
AMD's technological advantages over Intel can help it maintain the amazing growth rate of its largest business unit by increasing its market share and having stronger pricing. Not surprisingly, analysts expect AMD's annual revenue growth rate in the next five years to reach 32%.
Given that AMD stock currently trades at a price-to-earnings ratio of 38 times, compared to its five-year average price-to-earnings ratio of 120 times, it is currently the most worthwhile growth stock to buy because it can increase its revenue by billions of dollars and hurt its earnings by continuing to substantially increase profitability. Its bigger competitor.
