From time to time, Advanced Micro Devices, Inc. (NASDAQ:AMD) is the subject of buyout rumors. And, yes, the latest rumor bubbled up last week. AMD stock did climb — and so did the volume. But for the most part, it looks like it was another false alarm.
So, what now? What can we expect from AMD stock?
Well, I’ve been a bull on the shares for some time. Over the years, CEO Lisa Su has done an incredible job in pulling the company out of a death spiral and has somehow made AMD a world-class competitor (note that back in 2015 the shares were trading at around $2). A big part of this has been with the unloading of non-core divisions and cost cutting. But she has also been savvy on R&D and the product strategy.
How a Buyout Would Benefit Advanced Micro Devices Stock
Yet, there is one nagging issue with Advanced Micro Devices stock — the company lacks global scale. No doubt, this can hamper long-term growth. But a buyout would certainly be a way to solve the problem.
And the good news is that there is quite a bit of value for a potential suitor. According to InvestorPlace’s Aaron Levitt: “Advanced Micro Devices has once again started to innovate in a big way.”
First of all, AMD has doubled-down on its core competency: GPUs (graphics processing units). To this end, the company has rolled out its Vega system, which provides for tremendous processing power and also allows for advanced geometries and compute engines. In terms of the market opportunity, it is huge. VEGA is targeting key areas like gaming, VR (virtual reality) and machine learning.
Then there is the Ryzen platform, which is an extensive set of sophisticated CPUs. So far, there has been considerable uptake in the desktop market. But AMD has also been moving aggressively into mobile — such as with ultra-thin notebooks from Lenovo and HP Inc (NYSE:HPQ).
Yet, perhaps the most impactful part of the product line — which should propel AMD stock — is Epyc. This chipset is targeted at the lucrative datacenter market. Of course, growth has been torrid because of the megatrend of cloud computing. Actually, AMD has already snagged some of the industry’s top players like Microsoft Corporation (NASDAQ:MSFT), Baidu Inc (ADR)(NASDAQ:BIDU) and Tencent Holdings Ltd (OTCMKTS:TCEHY). According to AMD’s most recent investor presentation, the datacenter market represents $21 billion on a global basis.
Finally, AMD has been smart to develop embedded chips as well. These allow for the development of specific-purpose systems like smart watches, medical applications, IoT (Internet of Things) and smartphones. Already AMD has launched embedded chips for EPYC and Ryzen. According to IDC, the market opportunity is anywhere from $14 to $15 billion a year.
Bottom Line on AMD Stock
AMD stock has a market value of $11.3 billion, which makes an acquisition fairly cheap for many possible buyers. Although, the acquirer may not necessarily be a semiconductor operator like Nvidia Corporation (NASDAQ:NVDA) or Broadcom Ltd (NASDAQ:AVGO). Rather, companies like Alphabet Inc (NASDAQ:GOOGL), MSFT and Apple Inc. (NASDAQ:AAPL) are looking at developing their own chipsets. This technology is becoming increasingly strategic.
Now this is not to say that a deal for AMD stock is imminent or inevitable. Hey, the company has been around since 1969!
But, then again, AMD does offer an affordable way to get a piece of some of the hottest segments of technology. More importantly, chip players have already been ramping up their M&A efforts to consolidate the market. In other words, betting on a deal — say in the next year or so — does seem reasonable.
Tom Taulli is the author of High-Profit IPO Strategies, All About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.