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AMD Is a Supercomputer Maker, But Not a Super Stock

support@smarteranalyst.com (Ben Mahaney)

“Super” isn’t cutting it for some.

Advanced Micro Devices (AMD) last week made headlines with word that the company, alongside Cray, have been selected by the US Department of Energy to develop the world’s fastest supercomputer. Though a great piece of PR, many suggest that this does little for AMD’s long term, as revenue would not drastically rise from this one project. One of these believers is Deutsche Bank analyst Ross Seymore.

Amid the supercomputer news, Seymore maintained his Hold rating on AMD stock with a price target of $25, which implies 8% downside from current levels. 

As always, we like to give credit where credit is due. According to TipRanks, which measures analysts’ and bloggers’ success rate based on how their calls perform, Seymore has a yearly average return of 25.9% and an 80% success rate. Seymore is ranked #26 out of 5,192 analysts.

The AMD-Cray supercomputer — called ‘Frontier’ — will be the fastest in the world. The computer is expected to be ready in 2021, with performance of 1.5 quadrillion calculations per second — this is equal to the next 160 fastest supercomputers, and will take up more than 7,000 square feet of space. AMD will supply both the CPUs and GPUs for the project.

The size of the project and contract gives AMD significant bragging rights, but Seymore says its “financial benefits...may not be significant.” At $600 million, it is the “the largest contract awarded to date by the Dept. of Energy, but still is only a fraction of AMD’s annual revenue of almost $7 billion. So while a nice additional sum, not large enough to significantly move AMD — nor is this a new long-term revenue stream.

Even though financially AMD isn’t gaining significantly, Seymore believes the company will grow through “the reputational endorsement” regarding its performance prowess. He says increased trust in AMD “could flow to other large datacenter/PC OEMs who remain dubious on moving more CPU/GPU allocation to AMD.” As one large client shows trust in AMD, Seymore believes this will contribute to pushing others, too.  

While The supercomputer is a major bump for AMD’s brand, more importantly it adds to the company’s growing product line. Later this year, AMD is expected to release its 7nm chips for the PC and server markets, which is expected contribute greatly to performance, especially as rival Intel continues to see challenges with its 10nm chips. As AMD continues to innovate, it is expected to continue to eat up market share from Intel (INTC)

TipRanks analysis of 21 analyst ratings echoes the positive sentiment, with a a consensus Moderate Buy rating on 13 Buys, seven Holds and one Sell. The $30.76 average price target represents a 17% increase from the stock is currently trading.

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