The Bold Move by AMD
AMD’s stock surged by +3% today following the announcement of its $4.9 billion acquisition of ZT Systems. This daring strategic move is anticipated to allow AMD to ramp up its competition with Nvidia in the realm of artificial intelligence.
ZT Systems, a New Jersey-based company founded in 1994, specializes in data center infrastructure – an area crucial for the AI sector where Nvidia currently holds a dominant position.
Benefits of the Acquisition
Leveraging ZT Systems’ expertise, AMD aims to accelerate the development and deployment of its latest AI GPUs, catering to the demands of industry giants like Microsoft. This acquisition could well be the game-changer that propels AMD’s AI capabilities to new heights.
Examining AMD’s Financial Standing
Financing 75% of the ZT Systems deal in cash signifies AMD’s strong cash reserves, standing at $5.34 billion. The remaining portion will be covered through stock offerings. With total assets of $67.88 billion far exceeding total liabilities of $11.34 billion, AMD appears to be in a comfortable financial position for this acquisition.
A Glimpse into AMD’s Growth Trajectory
Projections indicate a steady rise in AMD’s total sales, set to increase by 12% in fiscal 2024 and an impressive 26% in FY25. Earnings per share (EPS) are expected to climb by 26% this year and a further 54% in FY25, painting a promising picture of growth prospects for the company.
Comparative Analysis of AMD’s Performance
Despite the recent rally boosting AMD’s shares by +3%, the stock has lagged behind Nvidia, which has seen a staggering increase of over +150%. Over the past two years, AMD has recorded gains of +64%, surpassing broader market indexes but trailing far behind Nvidia’s remarkable +643% surge.
Assessing AMD’s Valuation
Currently trading at 44.3X forward earnings, AMD’s valuation places it at a premium compared to the S&P 500’s 23.4X. However, when compared to Nvidia and the industry average of 42.5X, AMD’s valuation is relatively in line. Notably, AMD’s current valuation is significantly lower than its five-year high of 107.2X forward earnings.
Final Thoughts
With a Zacks Rank #3 (Hold), AMD presents an intriguing opportunity for investors. While the stock has underperformed the broader market in the short term, the acquisition of ZT Systems could pave the way for significant growth in AMD’s AI capabilities and overall market presence. Long-term investors may find this juncture rewarding as AMD navigates new horizons with confidence.