The share price of chipmaker Advanced Micro Devices [AMD] has risen by 54% between the start of October and 16 November close. Its most recent surge was driven by a new deal with Facebook parent Meta Platforms [FB].
On 8 November the companies announced that Meta will use AMD’s EPYC server microprocessors in its hyperscale data centres and help the group develop its metaverse future. This is a virtual world where users, in the form of avatars, can socialise, work, learn and buy.
As such, it needs the right hardware to power the environment.
AMD share price increase between 1 October and 16 November
"Meta is the latest major hyperscale cloud company that has adopted AMD EPYC Central Processor Units (CPUs). AMD and Meta worked together to define an open, cloud-scale, single-socket server designed for performance and power efficiency, based on the 3rd Gen EPYC processor,” AMD said at its recent Accelerated Data Centre Premiere Event.
Vivek Arya, an analyst at Bank of America, upped his price target on the stock to $175 from $150 and maintained a ‘buy’ rating.
“This is an important development since Meta is the last major hyperscale hold-out to adopt AMD,” he said, reported TheStreet. “Meta just announced plans to grow capex by more than 65% next year, meaning AMD can now share in this upside with Intel [INTC] and Nvidia [NVDA].”
Jefferies analyst Mark Lipacis said, “We view FB as a huge, validating win for AMD, foreshadowing accelerating market share gains,” reported by TheStreet.
Harsh Chauhan from The Motley Fool wrote: “AMD's partnership with Meta means that it now has another avenue to grow sales of its EPYC server chips and boost the performance of its enterprise, embedded, and semi-custom (EESC) segment.”
It also has deals with Alphabet's Google Cloud, Amazon's Amazon Web Services and Microsoft's [MSFT] Azure.
Third quarter boost
The AMD share price has also charged higher thanks to stellar third-quarter results released in late October.
It reported earnings per share of $0.73, up 16% on the same period a year ago and beating analyst forecasts of $0.67. Revenues came in at $4.31bn, up 54% year-over-year and higher than forecasts of $4.12bn.
Its computing and graphics division, boosted by the use of its processors and graphics in game consoles and PCs for remote working, recorded a 44% rise in revenues to $2.4bn.
It warned that the PC market had seen a slowdown compared with this time last year, but, reported CNBC, it was selling its chips at higher average prices as its customers sought out more powerful processors.
Data centre sales doubled year-over-year as big business increasingly turned to the cloud to cope with increased capacity and need for security.
According to Mercury Research, AMD took market share from Intel in processor units for notebook PCs and servers but lost ground in desktop PC processors.
As reported by Investor’s Business Daily, its share of notebook PC processor sales was 22% in the third quarter, up from 20.2% in the same period last year.
Its server CPU market share was 10.2%, up from 6.6% this time last year.
Further growth is on the horizon, particularly in the shape of AMD’s planned $35bn acquisition of semiconductor manufacturer Xilinx [XLNX].
Size of AMD's planned acquisition of Xilinx
This, experts state, will allow it to compete even harder with rival Intel and take more market share, particularly in the data centre chip market.
According to CNBC, the group is on track to seal the deal by the end of this year, and it is making good progress in getting the necessary regulatory approvals.
There are challenges ahead, mainly due to the semiconductor shortage, but AMD expects this to improve next year.
Apple and Amazon threat
Another cloud on the horizon comes from clients such as Apple [AAPL] and Amazon [AMZN], which are making their own in-house designed chips.
They have the cash to produce their own personalised chips and in theory take the market away from the likes of AMD.
“Whereas Intel in the 1990s was an order of magnitude larger than all their customers, now the customer has superior scale over the supplier,” James Wang, an analyst at New York money-manager ARK Investment Management, told the Wall Street Journal. “As a result, they have more capital and more expertise to take components in-house.”
But this will be a long process. Expect more to take the shortcut route like Facebook and ask developers like AMD to lead their future technologies.
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