A Brief Update On The Stock

Selling pressure has presided over Wall Street in recent days, therefore, we want to provide a quick update on a portfolio name that we're monitoring into the decline.

Shares of Advanced Micro Devices (AMD) closed down 10% on Friday last week to the low $110s, despite no specific news from the company. We have a few thoughts on what might be the reasons. First, AMD has a relatively high price-to-earnings multiple, and as we've repeatedly hammer home this year, high multiple stocks tend to get crushed when investors worry about Federal Reserve's interest rate hikes, the fear of which has accelerated after last Thursday's inflation data. Second, growing concerns about a Russian invasion of Ukraine is sending the whole stock market down. Third, Friday's volatility could be due to the expected closing of the Xylinx acquisition on or about 14th February 2022, which is an all-stock transaction. 

Either way, we think this sharp of a pullback despite no company-specific negative news looks excessive, especially after company posted a stronger than expected quarter and provided 2022 guidance that was above expectations.

Wall Street Research

A new Wall Street research report published last week suggests that core portfolio holding Advanced Micro Devices (AMD) will continue to gain shares of the data center processing business at the expense of Intel (INTC). The note, published by analysts at Jefferies, used data from Mercury Research, a firm that specializes in the PC component market.

Here’s what Jefferies equity analysts Mark Lipacis and Brian Chen wrote Wednesday for their 2022 outlook as they reiterated their buy rating on AMD:

For 2022 data center dual-socket units, we estimate AMD increases by 65% YY vs INTC at 10% YY, implying AMD should gain an additional 600bps YY of unit share.

The forecast from Lipacis and Chen builds on what they see as favorable developments for AMD in the fourth quarter. The analysts believe AMD gained share on a unit-volume basis, while revenue share remained flat. Here’s what they wrote (emphasis ours):

AMD dual-socket server unit share is up 28bps to 15.1%, while rev share was flattish at 14.8%. Mercury estimated that AMD server ASPs (average selling price) declined by 80bps QQ after increasing 13% in Q3. However, with the launch of Genoa (AMD's next-gen EPYC processors), we expect ASPs to increase by 7% by 2H22. We expect AMD share gains to exceed 150bps/qtr for the next 4-to-8 qtrs.

Bottom Line

We don't want to miss this opportunity of a sharp decline in the stock albeit a strong growth in the company, therefore will look to add to our position if we are allowed to (based on our portfolio management disciplines). However, leave plenty of room for geopolitical tensions that is on the rise.