Expect Another Massive Year Ahead For AMD Stock

Advanced Micro Devices (NASDAQ:AMD) stock had a blowout 2021.

Advanced Micro Devices (AMD) billboard showing two of its popular product lines, Ryzen and Radeon.
Source: Joseph GTK / Shutterstock.com

The chip designer’s shares gained 57% last year and were among the top-performing tech stocks. Considering AMD’s growth trajectory, 2022 is likely to be no different. Its incredible revenue growth and increasing profitability will take AMD stock to new heights.

With such massive gains last year, the obvious question around AMD relates to its valuation. Its mega-market capitalization of over $159 billion is sure to petrify any investor. However, when you boil it down to brass tacks, the stock seems fairly valued in line with its peers, and in fact, has immense upside ahead. For instance, AMD stock trades at roughly 9.x times forward sales, whereas Nvidia (NASDAQ:NVDA) stock trades at a whopping 25x forward sales.

Given AMD’s architecture upgrades and robust product launches this year and beyond, the company is poised for multi-bagger returns ahead.

Incredible Growth Ahead

AMD saw rapid revenue growth last year across its core businesses and raised its outlook in the past couple of quarters. It saw a healthy 54% bump in revenues from the prior-year period in the third quarter, generating $4.31 billion due to its robust execution.

The company’s enterprise business revenues grew 69% on a year-over-year basis to $1.69 billion during the third quarter. Moreover, its computer and graphics division also showed impressive momentum, with 44% growth from the prior year.

Supply shortages and high selling prices had plagued 2021 for gamers. However, AMD believes that it will observe lower prices by improving the supply and demand dynamics. AMD recently revealed its latest graphics card in hopes of gaining a much larger piece of the burgeoning gaming market.

Over the years, AMD has focused primarily on its data center business, gaining tremendous traction last year. With massive success for its 7nm process, AMD is now looking to expand into the Zen-4 5nm process this year. These developments will help the company improve its position against its chief competitor in Nvidia.

Moreover, with its entry-level GPU, AMD will also make a sizeable dent in the broader gaming market. Therefore, there’s a lot to be excited about with AMD this year and beyond.

The Xilinx Deal

After much delay, AMD’s highly anticipated Xilinx (NASDAQ:XLNX) deal is expected to close out in the first few months of the year. AMD’s acquisition of Xilinx will expand its technological portfolio and grow its data center business. Chinese regulators are still under the deal, which is likely to decide soon. AMD has re-assured the anti-trust regulator that the deal won’t be hurting the competition.

The Xilinx acquisition will help AMD significantly expand the number of chips it produces, posing an even bigger threat to Intel (NASDAQ:INTC). AMD has gained a lot of ground across multiple verticals and now appears to be in a position to push on. The addition of Xilinx will help the company further refine its products for multiple growth avenues.

Additionally, Xilinx boasts incredible profitability and cash flow margins which will significantly improve AMD’s margins. Moreover, it is expected that both companies will cut annual costs by an added $300 million on an annual basis.

Bottom Line on AMD Stock

AMD was among the crème de la crème of the stock market last year, and this year shouldn’t be any different judging from the recent CES tech conference. AMD CEO Lisa Su states that the company can achieve a long-term sales growth rate of 20%.

Once we digest her commentary at the CES, it’s easy to understand why she’s so confident about the future. AMD stock remains a solid buy at this stage.

On the date of publication, Muslim Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.


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