What Is AMD’s Fair Price Estimate Based On Expected 2019 Earnings?
AMD’s (NYSE:AMD) stock has seen a stellar run with over a 45% surge in price year to date. While there are several factors that have led to such optimism in the company, the current price is higher than our estimate. AMD’s near term growth can largely be attributed to its Ryzen and EPYC products, which are gaining market share from Intel. This note details Trefis’ forecasts for AMD for 2019. You can view our interactive dashboard analysis on ~ What’s Driving Our $23 Price Estimate For AMD? ~ for more details on the expected performance of the company. In addition, you can see more of our data for information technology companies here.
What Are The Key Sources of AMD’s Revenue, And How Have They Trended In The Recent Quarters?
- AMD manufactures and markets microprocessors used in servers, desktops, and notebooks. It reports its revenues under two segments ~ Computing & Graphics, and Enterprise, Embedded & Semi-Custom.
- Computing & Graphics includes revenue from sales of microprocessors and graphics processors for desktops and notebooks. The segment revenues of $4.13 billion in 2018 accounted for 64% of the company’s total revenues.
- Enterprise, Embedded & Semi-Custom includes revenue from the sale of embedded processors, semi-custom system-on-chip (SoC) products, development services and technology for game consoles, and server microprocessors. The segment revenues of $2.35 billion in 2018 contributed 36% to the company’s top line.
- Total Revenues for AMD have largely trended lower over recent quarters, declining from $1.65 billion in Q1 2018 to $1.27 billion in Q1 2019. This can primarily be attributed to a decline in blockchain related demand.
How Does The Revenue Growth of AMD Compare To Its Peers?
- AMD’s revenues have declined at an average of 0.2% from $1.34 billion in Q4 2017 to $1.27 billion in Q1 2019. AMD’s decline rate was lower than that of Intel and Nvidia.
- Nvidia’s average revenue declined 4.1% from $2.91 billion in Q4 fiscal 2018 to $2.22 billion in Q1 fiscal 2020.
- Intel’s revenues have declined at an average of 0.8% from $17.05 billion in Q4 2017 to $16.06 billion in Q1 2019.
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How Much Can AMD’s Top Line Grow In 2019?
- AMD’s revenues will likely grow 6.6% to $6.90 billion in 2019.
- Computing & Graphics segment will likely see 8% growth to $4.45 billion in 2019, led by Ryzen products, which continue to see strong demand. Ryzen is the line for the company’s CPUs. AMD is gaining market share in desktops and notebooks, led by its Ryzen products. Higher demand for Ryzen has given the company room to increase its pricing, which is further aiding the margins as well.
- Enterprise, Embed & Custom segment could see 4% revenue growth to $2.44 billion in 2019, led by continued growth in EPYC shipments. EPYC refers to x86 microprocessors based on Zen microarchitecture targeted for server markets. The company’s datacenter processors’ market share could increase from 4% to 10% by next year. The overall X86 market is worth $18 billion, and a 10% share will translate into $1.8 billion in revenues (28% of the company’s total 2018 revenues).
How Much Can AMD’s Earnings Grow Based On The Expected Revenue Trends Above?
- AMD’s full year 2019 earnings will likely be $0.65 per share, reflecting 48% growth over 2018.
- Consensus earnings estimate ~ 0.65
- Earnings growth can be attributed to higher revenues, and expected improvement in margins, partly driven by higher pricing for Ryzen and EPYC products.
What Is AMD’s Fair Value Share Price Estimate Based On the Above?
- Our price estimate of $23 for AMD is based on a 36x price to earnings multiple, and earnings of $0.65 per share in 2019.
- The multiple for AMD is higher than that of Intel and Nvidia, given it could garner strong growth in the medium term gaining share in the server as well as notebooks market.
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