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On Tuesday, Citi reaffirmed its Neutral rating on AMD stock (NASDAQ:AMD), maintaining a price target of $100. The decision came after AMD’s announcement on Monday that it will sell the manufacturing segment of ZT Systems to Sanmina for $3.0 billion. This move is a follow-up to AMD’s acquisition of ZT Systems in August for $4.6 billion, with the intent to divest the manufacturing component while keeping the engineering team to enhance its competitive edge against Nvidia (NASDAQ:NVDA). According to InvestingPro data, AMD, currently valued at $186 billion, appears undervalued based on its Fair Value calculation, with analysts maintaining price targets ranging from $75 to $200.
AMD’s strategic divestiture allows the company to focus on its core competencies by retaining the 1,200-strong engineering team acquired through the ZT Systems deal. The cost of this retention amounts to approximately $1.6 billion, breaking down to just over $1.33 million per engineer. This calculated approach aims to bolster AMD’s position in the market without the additional weight of the manufacturing business. The company’s strong financial position is evident in its healthy current ratio of 2.8 and impressive revenue growth of 21.7% over the last twelve months.
Citi’s analyst pointed out the financial aspect of the transaction, noting that AMD’s overall expenditure for the engineering talent stands at a significant sum, which reflects the company’s commitment to strengthening its expertise. Despite this move, Citi continues to hold a Neutral stance on AMD, indicating that the firm sees the stock as fairly valued at the current price target.
The sale to Sanmina is expected to provide AMD with a substantial influx of cash, which could be utilized for further investments in research and development or other strategic initiatives. The transaction underscores AMD’s focus on innovation and its direct competition with industry rival Nvidia, particularly in areas of advanced computing and graphics technologies.
The market will be watching closely to see how AMD integrates the ZT Systems engineering team and whether this investment will pay off in terms of enhanced product offerings and market share gains. For now, Citi’s assessment remains unchanged as it watches AMD’s next moves in the evolving tech landscape. InvestingPro subscribers have access to 16 additional exclusive ProTips and comprehensive analysis of AMD’s financial health, which currently rates as GOOD based on multiple factors including profitability, growth, and cash flow metrics.
In other recent news, Advanced Micro Devices, Inc. (AMD) has announced a $6 billion share repurchase program, adding to the approximately $4 billion remaining from a previous authorization, bringing the total buyback capacity to an estimated $10 billion. This move underscores AMD’s strong financial position and commitment to shareholder value. Furthermore, Sanmina Corporation has entered into a definitive agreement to acquire ZT Systems’ data center infrastructure manufacturing business from AMD for $2.55 billion in cash and equity, with an additional $450 million in contingent consideration. This acquisition aims to enhance Sanmina’s presence in cloud and AI infrastructure manufacturing.
Analysts have also weighed in on AMD’s prospects. Stifel reiterated a Buy rating with a $132 price target, highlighting AMD’s strategic divestiture and partnership with Sanmina as key to strengthening its AI infrastructure market position. Meanwhile, Mizuho (NYSE:MFG) Securities raised its price target for AMD to $135, citing the company’s AI growth prospects and strategic partnerships, such as the $10 billion HUMAIN collaboration. Evercore ISI maintained an Outperform rating with a $126 target, emphasizing AMD’s consistent strategy in the datacenter GPU business, mirroring its successful server CPU market approach.
These developments reflect AMD’s focus on AI initiatives and strategic partnerships, which are crucial drivers of the company’s growth and market position. The company’s leadership remains confident in its long-term strategy, aiming for gradual market share increases across various segments. As AMD continues to execute its strategic plans, analysts express optimism about its future trajectory.
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