The semiconductor industry has experienced tremendous growth over the past two years, driven by the growing demand for chips in many areas such as data centers, personal computers (PCs), smartphones, factories and vehicles, among others.
The semiconductor industry generated $582 billion in revenue last year, according to IDC. Industry revenue is also expected to grow by 13.7% in 2022 to $661 billion. However, Wall Street is concerned about the strength of the semiconductor industry following dire reports from people like Nvidia and Micron Technology.
However, Advanced micro-systems (AMD -0.38%) is a semiconductor stock that could continue to thrive even if the broader market slows. Let’s see why this may be the case.
AMD is growing at a steady pace despite headwinds
When AMD released its second quarter results on August 2, it surprised Wall Street by posting 70% year-over-year revenue growth to $6.6 billion despite the huge slowdown in sales of pc. The chipmaker’s impressive growth was helped by data center activity, but it’s worth noting that it also saw robust growth in sales of chips used in PCs.
AMD’s revenue from the customer segment, which includes sales of processors used in desktops, laptops and workstations, increased 25% year-over-year to 2.2 billion in the last quarter. That’s impressive considering that global PC shipments fell 15.3% in the second quarter. AMD’s market share gains in desktop and notebook processors played a key role in the growth of the customer segment.
According to Mercury Research, AMD ended the second quarter with a 20.6% share of the desktop processor market, an increase of 3.5 percentage points over the previous year. Its share of the laptop processor market stood at 24.8% last quarter, an impressive jump of 4.8 percentage points from the year-ago period. Thus, AMD’s technology is ahead of its rival Intel (INTC 0.33%) helped it mitigate PC market weakness and boost processor sales volumes last quarter.
Additionally, the average selling price (ASP) of AMD’s customer processors increased year-over-year, boosting the company’s operating margin by one percentage point to 32%. The good part is that AMD expects its client processor business to continue to improve despite the PC slowdown. Indeed, AMD’s Ryzen processors are expected to power nearly 300 laptop models this year.
Additionally, AMD will launch its next-generation Ryzen processors based on the 5-nanometer manufacturing process in the current quarter. These new processors should help AMD take more share from Intel, as the latter’s competing Raptor Lake processors, which are expected to hit the market in the fourth quarter, will be manufactured using a 10nm process.
The smaller die size of AMD’s upcoming processors means its chips could pack more computing power while being more power efficient. AMD’s current line of Ryzen processors are manufactured in a 7nm process, indicating that the company is poised to widen the gap to Intel, which could translate to increased sales among PCs. clients.
Data center business takes off
AMD’s data center revenue jumped 83% year over year in the second quarter to $1.5 billion. The chipmaker saw record sales of its EPYC server processors last quarter, driven by tremendous demand from cloud and enterprise customers.
Mercury Research estimates that AMD controlled 13.9% of the server processor market in the second quarter, an increase of 4.4 percentage points from a year earlier. AMD is poised to push the boundaries of the server industry with the launch of its next-generation Genoa processors later in 2022. Based on a 5nm process, these processors could keep Intel rolling, as leaked benchmarks indicate. .
Thus, AMD looks set to grab a bigger share of the server processor market, which could boost the company’s growth as it sees a $42 billion revenue opportunity in this long-term segment. Add other growth drivers such as console gaming, and it’s easy to see why AMD could continue to challenge any potential weakness in the semiconductor market.
Overall, AMD’s market share gains and secular growth opportunities point to it being one of the top semiconductor stocks to buy right now, especially as it trades at 22 times forward earnings compared to an average multiple of 42 of five-year forward earnings.
Chauhan hard has no position in the stocks mentioned. The Motley Fool holds positions and recommends Advanced Micro Devices, Intel and Nvidia. The Motley Fool recommends the following options: $57.50 long calls January 2023 on Intel and short $57.50 January 2023 calls on Intel. The Motley Fool has a disclosure policy.
Comments are closed.