AMD Calls for Substantial Growth at 2022 Analyst Day; Shares Undervalued Relative to $130 FVE

On June 9, AMD hosted its financial analyst day at which management outlined its outlook for the firm. In addition to a long-term financial model that called for average revenue growth of 20% (versus our five-year revenue CAGR assumption of 19%) and non-GAAP gross margins north of 57%, AMD provided updated roadmaps for its CPU and graphics processing unit, or GPU, products in both the PC and data center arenas. Notably, the firm expects its total addressable market, or TAM, to be about $300 billion in the coming years. We view the data center market TAM ($125 billion) most favorably, as it includes CPUs, GPUs, field programmable gate arrays, or FPGAs, and data processing units, or DPUs. While we anticipate strong double-digit growth for AMD in this segment going forward, we also acknowledge both Nvidia and Intel are formidable competitors across these chip solutions. In the near term, we remain most impressed with AMD’s execution on its product roadmap, particularly with its EPYC server CPU family that continues to gain share at Intel’s expense. We are maintaining our $130 fair value estimate for narrow-moat AMD, and we think shares are attractive at current levels.