Over the last 12 months, AMD has posted a 6.5% gain on its shares while Intel has lost 5.2% of its value over the same period. While Intel’s market cap of $114 billion is evidence of its long term success, AMD continues to post steady growth.
AMD received a boost when Microsoft (MSFT) announced they would include an AMD chip in their new game controllers. Sony (SNE) and Nintendo already use AMD chips in their controllers giving AMD a major boost in the gaming market.
Server manufacturers Dell (DELL) and Hewlett-Packard Company (HPQ) are developing microservers that use lower-priced CPUs than traditional servers. AMD’s SeaMicro line is positioned to serve this new market. Some analysts believe that 20% of the server market will be utilizing these low-cost, low-power devices by 2016. This will further solidify AMD’s position as a player in the tech world.
Compared to last year, AMD posted a 17% revenue decline and a net operating loss of $65 million. However, when looking at the first two quarters of the current fiscal year, net operating income was $2 million in the second quarter compared to an operating loss of $38 million in the first quarter. Revenues increased 6% on a quarter by quarter basis. AMD expects its revenues to increase 22% quarter-on-quarter since its dual FirePro graphics card will be included in Apple’s (APPL) newest Mac Pro.
AMD is seriously undervalued in comparison to its competition. Investors value Intel at 2.08, IBM at 1.95 and Nvidia (NVDA) at 2.01, while AMD price to sales ratio is 0.50. This may be a mistake by investors given that its share price growth for the last three months has been approximately 36%. Intel has grown a paltry 4.7% in comparison, while IBM has lost -2.17%. Only Nvidia posted a double digit gain, but it pales in comparison at 17.6%. AMD and Nvidia are close in their EPS growth over the next five years with estimates at 11.50% and 12.00% respectively, while Intel is at 11.00% and IBM is 9.96%.
Heterogeneous System Architecture (HSA) went mainstream with Samsung (SSNFL:PK), Texas Instruments (TXN) and Qualcomm (QCOM) incorporated it into their products. ARM’s HSA processor architecture is used in nearly all of the mobile devices on the market today. AMD and Nvidia are leaders in GPU (Graphics Processing Unit) architecture and its related intellectual property.
AMD is positioned for growth in the HSA and GPU markets. Microsoft is building AMD GPU into its Windows 8.1 release allowing it to accelerate tasks that use GPU. As the efficiency and power of GPU continues to improve and be incorporated into new products, AMD stands to benefit most since it is on the cutting edge of this technology.
The research firm IDC indicated that the semiconductor market revenues will increase 2.9% year-on-year in 2014 to $329 billion. This equates to compound annual growth rate of 4.2% from 2012 to 2017. AMD is an undervalued company, despite the fact that its price multiples have fallen. The company continues to diversify and invest in creating new technology, bringing new customers on board. Business insiders and hedge fund traders are sweet on AMD in the long term. Investors should take a look at the long term and go with AMD.