On April 27 they were rewarded with net income of $642 million, 52 cents per share on revenue of $3.45 billion. The sales figure was up 94% from a year ago.
AMD stock is weak only because it already has a nosebleed valuation. In the days after the release AMD stock fell another 2%. It’s now near $82 per share with a market cap of $102 billion, on what could be $13.7 billion in sales if they can hold that pace. That’s a forward price-sales ratio of 7.4x, and a price-earnings ratio of 83x.
Investors Like Intel
I’m one of the investors Wall Street analysts like Jim Cramer don’t understand. He reiterated a buy call on AMD after earnings. Yet since the start of the year Intel (NASDAQ:INTC) shares are up 17%, after the company hired former VMware (NYSE:VMW) CEO Pat Gelsinger to run it.
Gelsinger plans to put $20 billion into making Intel a chip foundry. His target is Taiwan Semiconductor (NYSE:TSM), which makes AMD chips. TSMC, as it’s called, is also raising its capital budget, to over $25 billion. The two companies are racing each other in the desert southeast of Phoenix to build fabrication plants.
AMD designs have passed those of Intel in performance. Its road map now includes a chip with circuit lines just 3 nanometers apart, while Intel is still stuck at 10 nanometers. That chip could hit the market as early as 2024. I believe, hover, that Intel will match TSMC, benefitting from President Joe Biden’s demand that American computer makers buy American.
Want another reason to buy Intel? Unlike AMD it pays a dividend. Even with its recent rise in price it’s still yielding 2.4%.
No Fab, No Problem
Like Nvidia (NASDAQ:(NVDA)), 2020’s other hot hand in the semiconductor space, AMD is “fabless.” That means it’s purely a chip designer, a software house. It relies on other companies to do the capital-intensive job of manufacturing its product.
For the analysts who love it this means AMD’s small size is no problem. AMD ended 2020 with $2.3 billion in cash, but just $531 million in long-term debt. Even the semiconductor shortage is no problem. It just keeps AMD’s prices strong.
AMD has 16 analysts following it at Tipranks, nine of whom say buy it with a one-year price target of $106, up 26%. Intel, meanwhile, has 30 analysts at Tipranks, 12 of whom say buy it with a price target of $67, up 12%.
The Bottom Line
As Su says, “This is a very unique time in the semiconductor business.” The rise of self-driving cars, the power of the cloud market, the machine internet and the ubiquity of mobile devices have created a perfect storm around every semiconductor stock.
Chips are traditionally a boom-and-bust area. The investments of TSMC and Intel in Arizona are going to ease the current shortage at some time. They will likely overshoot. Analysts and investors see a glut of product ahead. Others are worried about the big cloud companies. Both AMD and Intel have a fraction of the market cap of Apple (NASDAQ:AAPL) and the other cloud stocks. Most now design their own chips. But all of them need fabrication plants.
The worries are the best reason to buy now. Not everyone is in this market. You should be.
At the time of publication, Dana Blankenhorn directly owned shares in (NVDA), INTC and TSM.
Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, available at the Amazon Kindle store. Write him at [email protected], tweet him at @danablankenhorn, or subscribe to his Substack https://danafblankenhorn.substack.com/.