With its strong positive catalysts and leverage to high growth technologies, Advanced Micro Devices, Inc. (NASDAQ:AMD) could very well follow in the footsteps of Mobileye NV (NYSE:MBLY) and become a takeover target. Given its powerful growth catalysts and high takeover potential, AMD stock is attractive at current levels, despite its huge advance over the last year.
Of course, Intel Corporation’s (NASDAQ:INTC) acquisition of Mobileye was seen as an effort by the chip giant to buy a growth engine. Similarly, AMD’s highly regarded new chips and processors, combined with its significant presence in the rapidly expanding gaming and graphics markets, make the company a growth engine that could easily attract a suitor such as Microsoft Corporation (NASDAQ:MSFT), Cisco Systems, Inc (NASDAQ:CSCO) or International Business Machines Corp. (NYSE:IBM).
AMD’s upcoming Zen chips “are expected to be good,” reported PC World, and Forbes columnist Anthony Leather said of its Ryzen chips, “for anyone that does often use rendering, video editing or other programs that benefit from the extra cores and threads, Ryzen is shaping up to be fantastic value.”
Most reviewers found that the Ryzen 7 1800K processor slightly outperforms the equivalent Intel processor, but AMD’s product sells for half the price of Intel’s offering, Leather reported.
Moreover, Ryzen processors will be used for video gaming, as are AMD’s Radeon graphics cards. Demand for digital games is growing quickly as mobile games become more popular, new consoles are launched, and virtual reality and augmented reality start to take off.
Speaking of VR and AR, “AMD’s Radeon RX 480 (graphics card) can …power virtual reality headsets offered by Facebook Inc’s (NASDAQ:FB) Oculus and HTC,” but the cards have a relatively low price tag, VentureBeat has said, as I noted in this Seeking Alpha piece. So by buying Advanced Micro Devices, an acquirer would obtain access to VR and AR, which are expected to be quite lucrative, PC World has quoted research firm IDC as saying.
Specifically, by 2020, 64.8 million VR devices will be shipped, up from an estimated 9.6 million last year, the firm predicted. Some 45.6 million AR hardware products will be shipped in 2020, up from 400,000 in 2016, according to the firm.
Finally, Advanced Micro Devices can benefit from the rapid proliferation of the artificial intelligence market. Identifying AMD as one of four stocks that could benefit from the growth of AI, Mizuho Securities analyst Vijay Rakesh said in a January research report that the chip maker could support the technology with field-programmable gate arrays, Investor’s Business Daily reported. Rakesh predicted that the market for servers equipped with AI would jump 12 times “over the next four years.”
Of course, all of these major growth catalysts make Advanced Micro Devices attractive, even without considering a potential acquisition. Although AMD stock has jumped over 400% in the last year, the company’s market capitalization is still only $12.9 billion, suggesting that it still has a long runway if it can capitalize on even 50% of its opportunities.
Several large companies could look to swallow up Advanced Micro Devices, giving buyers of AMD stock a nice, lucrative call option.
As China continues its strong push into semiconductor technology, Beijing could have one of its tech companies buy AMD. Large chip makers from foreign countries other than China, such as Taiwan Semiconductor Mfg. Co. Ltd. (ADR) (NYSE:TSM) or Samsung (OTCMKTS:SSNLF) could easily be enticed by AMD’s growth engines.
And there’s an outside shot that a large, slow-growth U.S. tech company like Microsoft, Cisco or IBM could look to acquire AMD. Although some may say that none of these companies has any experience making chips, Microsoft had no experience in social media but acquired LinkedIn, Cisco had little experience in IT security before buying companies in that sector, and IBM has made many acquisitions in so many areas, including, occasionally, hardware. So it wouldn’t be that surprising to see Big Blue go after AMD.
AMD has a market cap of $12.9 billion. An acquirer would probably have to pay a premium of at least 30%, meaning that the total price tag would be at least $16.8 billion. All of the companies named above have market caps of $150 billion or more, suggesting that they could all afford to buy AMD.
After the Mobileye deal indicated that older, slower tech companies are definitely in the market for growth engines, AMD could easily become the next takeover target in the tech world.
As of this writing, Larry Ramer did not hold a position in any of the aforementioned securities.
