Shares of Advanced Micro Devices Inc. (AMD), after more than tripling in 2018, have more room to run as demand for its new products continues to boost its sales and help the company steal market share from its semiconductor rivals, according to one team of bulls on the Street.
In a note to clients on Wednesday, Stifel analyst Kevin Cassidy hiked his 12-month price target on shares of AMD by over 80%, from $21 to $38, as reported by CNBC. His new forecast implies a 22% upside from Wednesday close.
(For more, see also: AMD a Buy on AI Advantage Over Nvidia: Rosenblatt.)
AMD Warrants Higher Valuation on Expanding GMs, Heightened Demand
Cassidy, who rates AMD at buy, echoes sentiment on the Street indicating that AMD is gaining ground against long-time chip industry leader Intel Corp. (INTC), which has delayed the production of its next-gen 10-nanometer processor. Meanwhile, AMD is ramping up production of its faster and more efficient 7-nanometer graphics processing unit (GPU).
“We believe AMD shares deserve a higher P/S valuation due to expanding GM [gross profit margin] driven by traction across the company's new products, management's solid execution and delayed competitive response from Intel," wrote the Stifel analyst.
Cassidy expects new products to improve the Santa Clara, Calif-based company's gross profit margins for at least the next four quarters. He estimates that gross margins will rise to 45% in the upcoming years from his fiscal 2019 gross margin estimate at 40.1%.
Meanwhile, as Intel delays its transition to its next-gen chip manufacturing process, Stifel indicates that company is facing a processor shortage.
"Intel not only hasn't had a competitive response but is likely struggling to meet demand. This opens the door for continued market share gains by AMD, in our view," wrote Cassidy.
Trading up 0.6% on Thursday morning at $31.41, AMD shares reflect a whopping 205.5% gain year to-date (YTD) compared to the S&P 500's 9.5% return over the same period, making the stock the top performing name in the index this year.