Advanced Micro Devices (NASDAQ:AMD) stock has been on a tear since last year, with a slew of positive developments, strong revenue growth, and a robust outlook.
Despite its stellar performance, AMC stock has moved sluggishly in the past few months in comparison to its peers.
The delay in the approval of its Xilinx deal in China and Europe seems to be holding its stock price back.
Hence AMC stock is trading at a fairly reasonable valuation and should break out once it overcomes its regulatory hurdles.
AMD is coming off one of its strongest years in recent memory, with its year-over-year revenue growth at over 57%.
Moreover, its year-over-year EBITDA growth is at an incredible 118%. It enjoys a technical edge over its competitors, such as Intel (NASDAQ:INTC), who have been forced to play catch-up for most of the year.
AMD currently trades at roughly seven times forward sales, which is relatively expensive. However, given its business momentum, robust financials and technical superiority, its valuation is more than justified at this point.
Glittering Financials
AMD recently reported its first-quarter results, where its revenues rose to $3.5 billion, representing a 93% increase from the prior-year period. Consequently, GAAP net income rose shot up to $555 million, representing a 243% growth from year-ago levels.
In comparison, Intel generated $19.7 billion in its first quarter, a 1% decline from the same quarter last year.
More importantly, net income dropped 41% during the period, mainly due to a restructuring charge of $2.2 billion. Additionally, its revenues rose 8% last year compared with 2019.
The technical edge has mainly driven AMD’s success in CPUs. A few years ago, many had written off the company, but under the leadership of Lisa Su, its fortunes have changed completely.
A series of game-changing decisions have driven share gains against Intel in the CPU department.
Furthermore, AMD has made some great strides as far as free cash flows are concerned. It generated an incredible $832 million in the quarter compared to Intel’s $1.6 billion.
However, considering that Intel generates six times as much revenue as AMD, its performance is lackluster.
AMD/Xilinx Merger
AMD agreed to acquire semiconductor company Xilinx in a $35 billion all-stock transaction late last year. The aim was for both companies to complement each other’s product portfolios, create synergies, and expand AMD’s revenue base.
In addition, the acquisition will give AMD’s data center business a massive boost. Both companies have similar competencies in areas such as artificial intelligence and systems-on-a-chip.
The merger provides access to new markets in the industrial and automotive realms for AMD. Xilinx’s data center business will effectively complement AMD’s robust server capabilities and will enable it to leverage its EPYC technology.
However, the merger had run into regulatory roadblocks in Europe and China. The primary concern of these markets relates to anti-competitive behavior, with the company becoming remarkably powerful.
As it stands, the EU’s top antitrust regulator states it has no objections to the merger. The UK’s antitrust regulator is evaluating the merger proposal and will decide by next month.
However, the approval process in China will take significantly longer than in Europe. The average review period for such deals in the industry is more than 300 days.
Nonetheless, the merger’s approval in the EU and UK will be a major catalyst in itself and should push AMD stock’s price higher.
Bottom Line on AMD Stock
AMD is coming off one of its most successful years, but its stock price momentum has been sluggish overall.
AMD’s merger with Xilinx has stalled in Europe and China, which has slowed down the growth in its stock price. However, these roadblocks are likely to fade away soon, removing any impediments for AMD stock.
AMD stock is a definite buy at this stage, with an incredible outlook ahead and its stellar financial positioning.
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.
