- Advanced Micro Devices’s (AMD) acquisition of Pensando improves the firm’s data center aspirations.
- The Xilinx acquisition was a move toward strengthening data center and FPGA positions.
- Some analysts are doubtful of AMD stock given the current environment.
Semiconductor manufacturer Advanced Micro Devices (NASDAQ:AMD) has made several acquisitions intended to improve its prospects and thus, AMD stock. While the moves are certainly well-reasoned, some analysts are concerned that wider factors will hold the chip maker’s share prices down moving forward.
Judging AMD stock isn’t easy at the moment. A majority of analysts agree that the firm’s long-term prospects remain strong, but 2022 hasn’t been easy for the company. Investors who established a position in AMD at the beginning of 2022 have seen prices drop from $150 to $93. Yet, AMD’s target price sits at $146.65. There is upside implicit in the shares at current prices.
The question becomes what to make of AMD’s acquisitions and their impact on the company moving forward during these uncertain times.
| AMD | Advanced Micro Devices | $94.02 |
Pensando Purchase
AMD purchased California-based Pensando for $1.9 billion on Apr.4. The Pensando purchase is intended to strengthen AMD’s position in data centers. Chipmakers are investing heavily in increasing their data center position. Part of that is simply increasing the scale of operations. That means a larger data center footprint. With that comes a need for increased efficiency as scaling up can lead to spiraling costs.
AMD Chief Executive Officer Lisa Su echoed that sentiment, stating that the purpose of the acquisition is to squeeze every last bit of efficiency out of data centers and lower costs. There is little doubt that AMD is positioning itself to better capture its share of what it sees as a $135 billion opportunity in cloud, edge computing, and intelligent devices.
For its part, Pensando looks to be up to the task. The firm boasts performance that is eight times to 13 times better than that of its competitors. The Pensando acquisition comes on the heels of AMD’s Xilinx purchase a few months earlier.
Xilinx Acquisition
It was only back in mid-February that AMD completed the largest deal in semiconductor history when it purchased Xilinx for $50 billion. That deal was also done with the goal of improving its position in data centers.
Xilinx, which will be known as the Adaptive and Embedded Computing Group (AECG) within AMD, is known for its field-programmable gate arrays (FPGA). FPGAs are programmable by the customer and can be designed to solve any problem. Juxtapose that against application-specific integrated circuits (ASICs), which have specific utility at the point of manufacture.
FPGAs are particularly important to AMD in terms of data centers because they are suitable for the building of hardware accelerators. AMD sees AECG as being especially valuable as it targets artificial intelligence and machine learning growth. The company sees the Xilinx/AECG acquisition adding $55 billion of value to its total addressable market.
Although the data center is a clear opportunity for the company and its acquisitions put it in better position to capitalize, there are issues for the stock.
Analyst Price Cut for AMD Stock
Truist (NYSE:TFC) analyst William Stein recently adjusted his target price on AMD to $111 from $144. Stein noted that second-half demand remains strong, but second-quarter production concerns are causing trepidation. He believes that these factors could be conspiring to create a perfect storm where demand destruction and excess supply trigger a cyclical downturn.
That would be a serious blow to not only AMD, but the semiconductor industry at large. Those concerns are part of greater worries that semiconductor stocks were overheated and won’t bounce back in 2022.
What to Do With AMD Stock
I believe AMD stock remains a buy. It has proven to be an integral part of the broader chip maker industry. Lisa Su is a strong leader who has taken the firm to new heights. But on top of that, there is the idea that some of the cyclicality in the semiconductor space may be lessening. Chips are becoming more and more ubiquitous. That doesn’t look to be slowing. So, it may be that chip stocks simply see less volatile cyclicality the more technologically advanced society becomes. That would certainly favor AMD.
On the date of publication, Alex Sirois 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.
