Wall Street thinks that its stock is risky because the outfit has low and fluctuating margins. However some analysts think that the launch of its EPYC line of server processors earlier this year will compete with Intel which has long dominated this market.
In fact, the word on the street is that the initial traction and reviews have been positive, and this could present AMD with an opportunity to grab some share and give a boost to its valuation.
If the numbers pad out, AMD could add 25 percent to its value by being more aggressive in the server market.
Forbes is predicting that if AMD gains a 10 percent share in the server processor market, it would imply a nearly 25 percent upside to its EPS, which would drive a similar upside to its price estimate - assuming the "valuation multiples" remain constant.
It suggests that EPYC server processors could gain enough market share thanks to the lower cost, and simplification of the future development roadmap. EPYC performance per watt is attractive and the company has seen some good traction lately.
The prediction is that global server CPU shipments in 2019 will reach 26 million, meaning a 10 percent market share gain will imply 2.6 million server CPUs shipped, This would mean incremental server revenue would be roughly $1.4 billion, assuming average processor pricing of $550.
This would increase AMD’s EBITDA by around $250 million and lead to incremental earnings of about $160 million, or 17 cents per share. This, in turn, would imply a 25 percent jump in EPS in 2019, and even more upside in the long run, Forbes said.