AMD Continues to Gain Share in Q3; FVE Remains at $109

AMD AMD reported its eighth consecutive quarter of double-digit revenue growth thanks to broad-based PC, server, and game console strength. Management is confident in the firm’s product pipeline for 2021 and now expects 65% revenue growth for the full year (up from 60%). We believe this guidance should be easily attainable, particularly as Intel deals with manufacturing challenges. We are maintaining our fair value estimate for narrow-moat AMD of $109 per share on a probability-weighted basis as we await AMD’s acquisition of Xilinx. We assess AMD’s standalone fair value at $98 per share. We assign a 75% probability of AMD’s acquisition of Xilinx closing, and our fair value for the combined entity would be $112 per share. With shares up 35% over the past three months, we recommend prospective investors wait for a pullback.

AMD’s third-quarter sales grew 54% year over year to $4.3 billion. Computing and graphics sales were $2.4 billion, up 44% year over year due to Ryzen processor strength and GPU growth in both PCs and data center. Client PC processor ASP was up year over year thanks to a richer mix of Ryzen processor sales. In the enterprise, embedded, and semicustom segment, revenue was $1.9 billion, up 69% year over year, thanks to the ongoing ramp of the latest Sony PlayStation and Microsoft Xbox consoles (for which AMD supplies the CPU and GPU) and continued EPYC server CPU traction, including increased adoption of AMD’s third generation EPYC processors dubbed Milan. Data center revenue more than doubled year over year thanks to growing cloud and enterprise adoption of AMD’s products and now accounts for over a mid-20s percentage of total sales. Gross margins were up 80 basis points sequentially to 48.4% thanks to a richer product mix.

Management expects fourth-quarter sales to be at a midpoint of $4.5 billion, which would be up 39% year over year. We expect AMD to benefit from continued growth in its server CPU and game console chip sales during the quarter.

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