When it comes to making powerful computer chips, Advanced micro-devices †AMD -3.66%† is the best in its class. The company is an incredibly versatile producer serving a variety of purposes, including gaming, the data center and even virtual reality applications.
Chips, known commercially as semiconductors, have become one of the most important manufacturing components as consumer equipment and commercial infrastructure increasingly require more computing power. It puts AMD in a prime position for long-term growth, and the company is already making significant investments in future technologies.
The stock is down 52% from its all-time high amid the broader technical sale, and the risk that a slowing economy could hurt consumer spending. But this is why it is a buy on the dip and could be a forever part of any portfolio.
AMD is deeply rooted in the future of technology
AMD is responsible for driving royalties for consumer products. The chips are in both Microsoft‘s Xbox and Sony‘s PlayStation 5, the best game consoles in the world. They also feature in Microsoft’s Surface line of notebooks and tablets.
But it gets better (and bigger). AMD semiconductors can be found in: Tesla‘s full line of electric vehicles, controlling the infotainment system in every car. These are not the same as the digital systems in most new, traditional combustion engine cars. Tesla’s infotainment systems control every aspect of the vehicle, from the air conditioning to the charging settings, internet browsing and even gaming.
Therefore, Tesla’s choice to use AMD for such a critical part of any vehicle is a strong confirmation of the quality of the company’s hardware.
But besides the consumer product side, AMD also shines in commercial environments. The chips power data centers used by some of the world’s leading cloud computing service providers, including Microsoft, Amazonand Alphabet‘s Google. In fact, in the recent first quarter of 2022, AMD deployed 70 new cloud instances to (among others) those multi-billion dollar giants.
AMD thinks long term
Earlier this year AMD completed its $49 billion acquisition of Xilinx, which is a world leader in adaptive computing. This technology has been in development for decades, but is finding new potential applications because computing needs evolve so quickly.
Traditionally, AMD has produced CPU (Central Processing Unit) chips and GPU (Graphics Processing Unit) chips. When it finds new ways to increase performance, it designs and markets new chips for customers to upgrade. Adaptive computing turns that process upside down — it describes computer chips that can be reconfigured in a real-time, live environment, without the need for new hardware.
AMD believes this is the next frontier in computing, and it could fuel growth for the company over the next decade (or more). Between 2016 and 2021, AMD grew its revenue at a compound annual rate of 30%, and analysts expect it to accelerate to 60% by 2022. Adaptive computing could refine AMD’s lead in the semiconductor industry and give these numbers even more life.
But the company is also highly profitable, generating $4.3 billion in non-GAAP net income over the past 12 months, which translates to $3.41 in profit per share† Non-GAAP numbers cut out one-time costs and some recurring non-operating costs, such as share-based fees, so they can give a more accurate indication of how the actual company is doing.
Wall Street Is Optimistic About AMD
AMD is a very popular stock among Wall Street analysts. Of the 40 backing it, only one recommends selling, and together they have an average price target of $134.89, representing a 74% increase from where it trades today.
One company in particular — Rosenblatt Securities — thinks AMD stock could climb as high as $200 in the next 12 to 18 months. That leaves room for a 158% gain for investors buying in at the current price of $77.50.
But it’s the long term that really matters. Within the next 10 years, the semiconductor industry could exceed an annual value of $1 trillion. Given AMD’s leadership not only in current technologies, but also in adaptive computing, the stock could have risen well past Rosenblatt’s $200 target by then.