Xilinx Inc XLNX

AMD reported strong third-quarter results that exceeded our expectations led by PC, server, and game console growth. The firm also announced it will purchase narrow-moat Xilinx in an all-stock transaction valued at $35 billion. We like the deal for AMD, as it is using its rich shares to fund the deal. Similarly, we’re less fond of the deal for Xilinx shareholders as, in our view, they are receiving less value than what market prices imply. We view this deal as a way for AMD to bolster its product portfolio with the leading FPGA franchise to drive growth and better diversify its revenue, as Xilinx products are complementary to AMD. Xilinx boasts a stellar margin profile with gross margins near 70%, which would be accretive to AMD’s financials. Key end markets for Xilinx include data centers, 5G, infrastructure, and automotive, which collectively would help AMD broaden its reach beyond PC and server CPUs.