This article has been written by an expert contributor Munro Partners
Who are they?
Advanced Micro Devices (NASDAQ: AMD) is a US semiconductor company that develops computer processors and related technologies to enable computing platforms for cloud, edge and end devices for the business and consumer markets. Or more simply, AMD has historically been known for the design of chips to go into PCs. It is a core holding in our High Performance Compute Area of Interest.
Semiconductor industry
Through the proliferation of desktop computers, laptops & tablets and smartphones, the semiconductor industry has grown from zero in the 1970s to a USD 500bn industry today.
Compute power has significantly improved over the last 50 years to create billions of dollars of revenue for semiconductor companies and endless opportunities for businesses and consumers. On our estimates, we think the next phase for the industry is in delivering artificial intelligence applications in everyday scenarios.
The 4th era of the global semiconductor industry has begun.
As this plays out, we estimate the semiconductor industry to grow to USD 1 trillion over the next 10 years.
Why do we like AMD?
What is fascinating to us, is that as computing power becomes faster and faster to deliver AI applications and double the size of the semiconductor market, there is only a small subset of companies that can deliver the required technology. One of those companies is AMD.
AMD’s fastest-growing segment is its server business, where it designs chips that can be used to enable the artificial intelligence era of semiconductors.
Given this opportunity and strength in its exposure to the gaming market, AMD has upgraded its earnings by approximately 20% so far in calendar 2022. At the recent analyst day, the company gave a new 3–4-year growth guidance of a 20% CAGR for revenue, a gross margin to expand to over 57% (up from 48% in 2021) and an operating margin in the mid-30 % range (from 25% in 2021).
The company has also acquired Xilinx, which is known for building programmable solutions, giving the combined entity leading high performance computing solutions. In doing this, AMD has increased its total addressable market opportunity from USD 79bn as a stand alone entity in 2020, to now USD 300bn over the next 5 years.
Given this opportunity as we move into the AI era for semiconductors and the few companies set to enable this shift, we believe AMD is attractively valued at under 20x forward earnings with a very sustainable earnings growth runway ahead.
Watch this video to learn more about High Performance Computing. Written by Munro Partners, July 2022.
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