Advanced Micro Devices (NASDAQ:AMD), the Santa Clara, California-based semiconductor company, has seen parabolic growth in recent years. AMD stock is one of the hottest names in tech over the last five years, with shares rocketing from the $2 level in 2015 to recent 52-week highs around $60 per share.
But growth investors shouldn’t let that incredible run scare them from the gas AMD still has left in the tank: this A-rated stock is still a buy for 2020 and beyond, driven by favorable trends in both CPU and GPU end markets, and, perhaps more importantly, market share gains.
In a word, the continued opportunity in AMD shares is driven by one thing: potential.
AMD’s Market Share and Margin Catalysts
At its core, AMD in 2020 is a tale of two markets: central processing units (CPUs) and graphics processing units (GPUs).
Recent years have seen market share gains in each lucrative segment, driven by AMD’s steadily improving technology. The major competitor in CPUs is Intel(NASDAQ:INTC), while Nvidia (NASDAQ:NVDA) is the foe to be reckoned with in GPUs.
In CPUs, AMD’s Ryzen line of processors have gained a decent share in the desktop market, and it’s closing in on laptops as well, although AMD is not as formidable in that category yet. These are Intel’s areas to lose, putting AMD in position to post major growth going forward if market share growth continues in coming years.
To help comprehend how AMD stock has jumped from $2 a share to nearly $60 in five years, consider market share in CPUs. The company’s market share for desktop CPUs as recently as the first quarter of 2017, for example, was 23.4%. Intel was gobbling up the remainder. By Q2 2020, and driven largely by 2019’s third-generation Ryzen CPU chip, AMD has vaulted to 46.6% of the market.
In laptops, AMD’s market share was 7.8% three years ago — it has since jumped to 12.9%.
AMD is also picking up share in the server CPU segment, although this is Intel’s bread-and-butter, so you shouldn’t expect a changing of the guard to happen overnight. Still, recent share gains have been impressive, as its EPYC line of chips has helped AMD boost market share from 0.8% in late 2017 to 4.5% at the end of last year.
Ryzen and EPYC played important roles in AMD’s first-quarter earnings report; the company cited these lines specifically as drivers behind gross margin expansion, a crucial metric for investors to watch in this space. Gross margins jumped from 41% a year ago to 46% in the first quarter on the heels of Ryzen and EPYC.
Zooming out a bit, it’s easy to see how the longer-term tale of market share growth and margin expansion has dramatically improved company financials. Between 2015 and 2019, revenue grew from $3.99 billion to $6.73 billion, gross margins expanded from 27.1% to 42.6%, and the company swung from a $660 million loss to a $341 million gain.
Encouraging Prospects for AMD Stock in 2020 and 2021
If AMD can continue to scrappily earn more and more market share from the big boys, AMD stock will be well worth an investment in 2020.
Recent numbers have been encouraging on the GPU front as well, with AMD’s total PC GPU share rocketing from 13% to 19% between the fourth quarter of 2018 and the fourth quarter of 2019. In gaming, AMD chips will help power both major next-generation consoles planned to debut in the fourth quarter of 2020: Microsoft’s (NASDAQ:MSFT) Xbox Series X and Sony Corporation’s (NYSE:SNE) PlayStation 5.
Going forward, analysts expect this sleeping semiconductor giant to continue to awaken, and so do I. With roughly 25% revenue growth expected in 2020 — one of the most testing years ever for markets — and 20%-plus revenue growth in 2021 being called for as well, AMD’s operating leverage and increasing margins should make for even more dramatic gains on the bottom line.
Louis Navellier had an unconventional start, as a grad student who accidentally built a market-beating stock system — with returns rivaling even Warren Buffett. In his latest feat, Louis discovered the “Master Key” to profiting from the biggest tech revolution of this (or any) generation. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.
