Should I Buy AMD Shares After the Xilinx Acquisition is Completed?


On Monday, AMD announced the completion of its $49 billion purchase of Xilinx, the largest in its history. On the back of the news, Moody's upgraded AMD's rating to A3, predicting 30% revenue growth in 2022. The deal will bring profit growth this year.

AMD on Monday announced it had completed its acquisition of competitor Xilinx, a leading programmable chip maker, in a stock deal valued at about $49 billion.

Shares of AMD rose slightly by 0.96%, after a sharp fall on Friday.

The deal between AMD and Xilinx was announced back in October 2020, but it wasn't until January 2022 that AMD received approval from the Chinese authorities. While the original value of the deal was $35 billion, its final value, along with AMD shares, has grown to almost $49 billion, given that Xilinx shareholders received 1.7234 AMD shares for each Xilinx share.

AMD CEO Lisa Su will lead the combined company. John Caldwell, former chairman, appointed lead independent director. Xilinx directors John Olson and Elizabeth Vanderslees have joined AMD's board of directors.

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Why you should buy AMD shares after Xilinx acquisition

Due to specialized chips from Xilinx, AMD is expanding its presence in the market for data center products. Xilinx has high performance technologies in the AI, 5G communications, automotive, industrial, aerospace and defense markets.

These are all markets where AMD has very little presence, and they all need high performance computing as well,” said Lisa Su.

The deal increases the total addressable market for AMD from about $80 billion to $135 billion. The combined company is also expected to achieve savings of about $300 million within 18 months of the deal closing. Those. the deal will benefit AMD's bottom line as early as this year.

On the back of the news, Moody's upgraded AMD's credit rating to A3, predicting a 30% revenue growth in 2022 to around $21.5 billion (excluding any contribution from Xilinx).

AMD's earnings and profitability will continue to grow strongly as the acquisition of Xilinx diversifies AMD's sources of revenue and earnings and expands its product portfolio beyond the core PC, server and gaming end markets,” Moody's said.

Xilinx has benefited from broad geographic, customer and end-market diversification and has generated positive free cash flow every year for over a decade.”

Market analysts also note that the acquisition of Xilinx will allow it to better compete with Intel (INTC) and Nvidia (NVDA) in the market for GPUs or GPUs for PCs, game consoles and data center chips.

In the fourth quarter, AMD robbed Intel of market share in server and laptop processors, according to Mercury Research. However, AMD lost ground in the desktop segment as it favored higher-margin products in a tight supply environment.

AMD's share of the lucrative server processor market rose to 10.7% in the fourth quarter from 7.1% a year earlier.

Including desktop and laptop processors, AMD's share of the total PC market was 19.9% ​​in the December quarter, up from 19.1% a year earlier.

In 2021, global chip sales grew 26.2% to a record $555.9 billion, up from $440.4 billion in 2020, according to the Semiconductor Industry Association trade group.

Following the report, Evercore ISI analyst CJ Muse raised his 2022 chip sales forecast to $645 billion, up 16% from 2021.

While AMD's 22.7% drop in the last quarter, compared to smaller drops in the S&P 500 and Nasdaq Composite (-6.4% and -13.7%, respectively), dampens investor optimism, both the company and market analysts are forecasting about strong positive long-term factors for the company.

Given that semiconductor demand will continue to rise and AMD has a very attractive roadmap for future products, buying AMD stock as the price declines seems like a smart move.

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