AMD long seen as an underdog to rival Intel

Advanced Micro Devices, the chip maker long seen as an underdog to rival Intel, doesn't get enough credit for a strategy that is now giving Intel some serious competition.

That's according to Larry Cordisco, co-lead of the Osterweis Growth & Income Fund, which invests in mid- and large-cap companies and who is very bullish on AMD's (ticker: AMD) prospects.

Advanced Micro is expected to close its $35 billion purchase of Xilinx (XLNX), a rival chip maker, later this year. When AMD does complete the deal, Cordisco expects AMD to generate about $35 billion of sales by 2024. More importantly, AMDs data center revenue could double this year and hit about $12 billion in 2024, Cordisco said.

AMD earnings are anticipated to be in the $2.75 to $3 per-share range this year and could shoot up to as much as $7 per share in 2024, he said. (The $7 is dependent on how much AMD management reinvests in the business, Cordisco said.) Net income will likely hit $3.5 billion this year and $11.5 billion by 2024.

If AMD closes its buy of Xilinx, earnings could hit $4 a share next year on $7 billion of net income, which is 27 times 2022 earnings, he said.

Advanced Micro is expected to be an "above trend grower for a long period of time," Cordisco said. One of the few things that could stop AMD's progress is if the data center market gets saturated or matures, he said. That's pretty unlikely. "Society is getting more digitized, not less. We're still in the meat of digitization, we're in the fourth to fifth inning of digitizing everything," Cordisco said.

Not much focus has gone to AMD's long-term roadmap, Cordisco said. Instead, Intel's (INTC) missteps have been credited with generating AMD's growth, he said.

Founded in 1969, AMD makes semiconductor chips used in computer processing. The Santa Clara, Calif., company has been a second-tier player to Intel for most of its existence. Both Intel and AMD dominate the market for X86 chips, which are used in data centers, laptops, desktops and servers. Intel, however, has had a greater than 90% market share of this X86 for most of the last 30 to 40 years, Cordisco said.

"That's what made Intel, Intel," he said.

That began changing when AMD named Lisa Su CEO in October 2014. She outsourced its chip production to Taiwan Semiconductor Manufacturing (TSM). Another big move was AMD's development of "chiplets" -- which separate the server chip into multiple smaller dies -- leading to faster production while lowering manufacturing costs compared to traditional chips.

The technology allows for AMD's chips to "integrate more seamlessly with other types of chips in the datacenter," Cordisco said. This is a rising requirement for data center customers because they have so many different chips, he said.

Then there's the Genoa server products, which have 96 cores, and are the latest chiplet architecture from AMD. Users can customize Genoa to do different things, and it's being released now to data center customers, Cordisco said. Genoa will be used to power El Capitan, the world's fastest supercomputer, that is expected to be delivered in 2023. "[Genoa] is expected to be the biggest growth driver of AMD's business over the next 6-12 months," he said.

This strategy has helped AMD stage a stunning rebound in the last several years. AMD's stock closed at $3.28 on Oct. 8, 2014, the day Su was named CEO of the company. Shares have jumped more than 3,000% since then, recently trading at $103.69 and valuing AMD at about $125.7 billion.

"Intel won't have anything like a chiplet for one to two years," Cordisco said. "Once you fall behind, the same way AMD fell behind Intel for 30 years, you have to really catch lightning in a bottle."

Cordisco pointed to the data center as an under-appreciated opportunity for AMD. It is the only company that owns commercial grade X86 chips and GPUs, which are used to process a lot of information.

AMD is engineering the two chips to work together seamlessly, Cordisco said. "The X86 and GPU interaction is one of the most important and fastest growing workloads in modern data centers," he said. "This GPU-X86 interface is big data processing. It's a big deal."

He pointed to Nvidia (NVDA), which trades at $220.33, because its GPU powers data centers, Cordisco said. He doesn't think AMD will dethrone Nvidia in the data center market, but he doesn't think AMD is getting any credit for this potential growth segment.

"GPUs in the data center could be a multi-billion dollar business for AMD and no one talks about that," Cordisco said.$AMD(AMD)$ $Intel(INTC)$ $Xilinx(XLNX)$