AMD Receives Price Boost On Anticipated ”Mid-20%” PC Market Share Gain Through 2020-2021

Feb 11, 2020
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Chipmaker Advanced Micro Devices, Inc (NASDAQ:AMD) had good news for investors and fans last week when Mercury Research released its market share statistics for the fourth quarter of 2019. These were important results, as they served to highlight AMD's performance in the market following the launch of 7nm-based Ryzen 3000 series central processing unit chips last year. The data showed that AMD gained 3.5% market share in the server, client, mobile and desktop markets as a whole.

Consequently, the Santa Clara, California based chipmaker's share price went up by 0.83% during the day's trading and closed at $49.73. However, this might only be the start for a company that has turned out its operations significantly over the past couple of years believes analyst Mitch Steves of RBC Capital Markets.

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As per the details, Steves is quite optimistic about AMD's future market share in the personal computing and server segment. With big data taking firm root in today's technological environment, servers and cloud computing are avenues that corporate tech giants the likes of Amazon.com, Inc (NASDAQ:AMZN), Microsoft Corporation (NASDAQ:MSFT), Intel Corporation (NASDAQ:INTC)and Alphabet Inc (NASDAQ:GOOG) (NASDAQ:GOOGL), to name a few are aggressively pursuing.

AMD too is busy targetting the server segment and RBC believes that the company's efforts in this regard will bear fruit and do so soon. Steves has "high conviction" in the server market reports SeekingAlpha, which we're taking to mean that he believes AMD will grow not by an insignificant margin in the area.

Alongside his expectations from the server segment, the analyst also provides his estimates of AMD's market share in the personal computing segment. Steves believes that the company's personal computing market share gains will "continue to move into the mid-20 percent market share range," through this year and the next.

AMD needs to grow by at least 46% to justify a $49.32/share price.

Growth estimates could result in an additional  $1,168 million being added to the company's coffers

Mercury's data shows that in 2019's fourth quarter, desktop processors remained AMD's best performing market segment. The company had an 18.3% market share in the category, and if Steves' prediction is correct, then it will gain between 5% and 8% percentage points in the segment over the next 24 or so months.

This estimate, in turn, lets us take a rough look at the financial impact of such an increase. AMD earned $4.7 billion from computing and graphics in its fiscal year 2019.  In the year, AMD grew its unit shipments by 4% and witnessed a 14% revenue increase in the segment, through a 22% growth in Average Selling Price (On a side note, the higher ASP falls in line with Mercury's report that AMD's market share rose on the back of processors with the highest core counts).

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Assuming that the average selling price growth of 22% demonstrated by the company last year stays constant, and AMD grows its central processing unit market share in the 5% - 8% range, then the company stands to exhibit a revenue growth in the segment that could range in between $600 million - $1,168 million. In other words, if Steven's assumptions play out over the course of this year and the next, then AMD's revenue from Computing and Graphics could stand at $5.3 billion - $5.9 billion at the end of the fiscal year 2021. Of course, this is the low end of an estimate as it assumes that revenue from graphics processing units will not increase. This is an unnatural assumption especially given the process node upgrades that are in store for us particularly in 2021.

Subsequently, RBC Capital Markets have increased their price target for a single share of Advanced Micro Devices, Inc by $10 to $63. At the time of publishing, the company is trading for $54.07 on the open market, up by $3.45% over yesterday's close.

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