genkur/iStock via Getty Images AMD ( AMD ) has been surrounded by a plethora of bearish narratives of late. Bears argue that the stock is not investable because it’s overvalued, the chipmaker is succumbing to competitive pressures and its growth momentum will slow down in the near future. While I appreciate the thought that went into their research, I beg to differ with the conclusion. In this article, we’ll examine the three aforementioned points in detail and understand why AMD remains a top-quality growth investment for 2022. Let’s take a closer look at it all. Process Competitiveness
Let me start by saying that Intel’s ( INTC ) marketing teams are working in full swing of late. The chipzilla laid out an ambitious product roadmap last month wherein they expect to roll out 4 product generations in the next 3 years. Intel also claims that with these launches, it’ll regain the process leadership by 2025. With all this buzz surrounding Intel, AMD’s shareholders are understandably concerned and rethinking their investment thesis in their company. But things aren’t dire for AMD, contrary to what many might think.
Let’s take a look at the table below to put things in perspective. Intel is essentially aiming to release a new consumer product generation in every 2.5 quarters on average. This may seem wonderful but it’s not realistic for several reasons. One, node shrinks aren’t that simple to execute, especially as the geometries become smaller. As a reminder, Intel’s 10nm and its preceding 14nm node shrinks were both mired with production delays. So, what’s to say Intel won’t face such unexpected production hiccups going forward as well? Business Quant Secondly, the chipzilla plans to implement certain geometries/architectures (eg: RibbonFET, Gate-All-Around) and fabrication technologies (eg: Extreme Ultraviolet, or EUV ) for the first time at scale in desktop parts in a bid to regain process leadership. These new technologies and features will further add to the complexity of node shrinks and could very well bring along unexpected quality, density and/or yield issues.
Lastly, Intel’s roadmap is likely to bring along: a sharp rise in depreciation expenses for the new equipment required for every node shrink, and/or;
reduced revenue lifecycle from different product generation due to their frequent releases, and/or;
lower operating margins if yields aren’t mastered timingly.
Overall, Intel’s current roadmap is likely to bring along a steep drop in its net margin profile and it may have to slash dividends, which is going to disappoint shareholders. So, for these reasons, I don’t think Intel will be able to execute on its roadmap realistically, and AMD investors should rest easy.
Moving forward, AMD plans to move to Taiwan Semiconductor’s ( TSM ) 5nm node later this year and it’s expected to adopt its 3nm process in 2023. This means AMD will have process parity with Intel for the foreseeable future at least, once we factor in the latter’s inevitable production delays.
There’s one important factor that many investors overlook. Apple is already using TSMC’s 5nm process and it’s expected to move to TSMC’s 3nm node sometime this year. This means that AMD will be inheriting already-functioning 5nm and 3nm production lines from TSMC, with optimized yields from the very start. This positions AMD rather well for volume launches and market share gains in the coming quarters. Strong Growth Momentum
Bears have lately been arguing that AMD has lost market share in Q4 2021 across desktop and notebook markets, which is a precursor for an impending growth slowdown in FY22. But that’s not necessarily how things will turn out. Business Quant It’s true that Intel gained market share in Q4 2021, thanks to its Alder Lake release. However, AMD has several catalysts lined up which is likely to bolster its revenue growth and possibly also contribute towards gaining market share against Intel in coming quarters.
For starters, AMD’s upcoming 5nm-based Zen 4 chips that are due for release later this year, are estimated to have approximately 70% higher transistor density compared to Intel 7-based Alder and Raptor Lake chips. This means AMD’s chips will have a notable performance advantage over Intel, which should bring along market share gains for the former in subsequent quarters.
Secondly, semiconductor supplies have been gradually improving and our channel checks reveal that AMD is preparing to launch 3 GPU SKUs and 3 desktop CPU SKUs in the next 2 months. The chipmaker also announced the availability of its Ryzen 6000-series notebook processors about 3 weeks ago. I think it’s needless to say but more SKUs […]
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