Steve Marcus/Reuters
- Raymond James initiated coverage on AMD Thursday with an "outperform" rating and a $100 price target.
- Analysts led by Chris Caso said the company has a "durable technical advantage" over Intel.
- The team used a 36x multiple on 2022 EPS estimates to arrive at their price target.
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Raymond James initiated coverage on Advanced Micro Devices (AMD) with an "outperform" rating and a $100 price target on Thursday.
The price target represents a potential 19% jump from Thursday's intraday highs.
In their note to clients, analysts led by Chris Caso cited AMD's "durable technical advantage" over Intel and growing server business as key reasons for their bullish view.
The analysts said that Intel's decision to stick with internal manufacturing has cemented AMD's technology lead through 2024 and that the stock's recent pullback is a buying opportunity.
"We think the stock's pullback has been driven by improved sentiment that Intel will solve their manufacturing challenges, which will reverse AMD's successes. We're taking the other side of that view," Caso and his team wrote.
"Now that Intel has committed to internal manufacturing, we think it's unlikely that Intel ever regains a transistor advantage vs. AMD," Caso added.
Intel announced last month it would double down on its in-house chip manufacturing business with plans to spend $20 billion on two new Arizona factories. The Santa Clara, California-based firm also plans on opening up its chip foundries to other companies so they can build their own designs.
The move came after VMWare's Pat Gelsinger took over as CEO in January.
Raymond James analysts explained how Intel's move to stick with its 7 nanometer(nm) process for internal manufacturing while AMD is moving to Taiwan Semiconductor's 5nm process next year-and likely to 3nm by 2024-is a big problem for the firm.
According to the analysts, the decision means AMD will hold a transistor advantage over Intel for at least the next three years.
Caso and his team also discussed cloud market share growth in their note to clients, calling it an important driver for AMD moving forward.
The analysts said the launch of AMD's 'Milan' chip for data centers represents the firm's first move into the enterprise server market and that a number of server OEMs are launching AMD designs for the first time this year. The team of analysts expects 59% year-over-year growth in the segment.
As far as risks to AMD's rise, Raymond James said a slowdown in PC sales could hurt revenue growth and that they "believe pandemic PC purchases pulled forward demand for several years."
However, the investment bank's analysts noted that AMD's increasing market share of PC sales and enterprise servers will mitigate much of the demand drawdown.
Finally, Raymond James expects 2022 earnings per share to hit $2.81, 12% ahead of the Street's consensus estimates. The analysts used a ~36x multiple on their 2022 EPS estimate to reach their $100 price target.
The team said they believe much of the bear case around AMD is due to fears of Intel's resurgence, but they "don't expect there to be much to catalyze those fears for a long while."