On May 1, Advanced Micro Devices (NASDAQ:AMD) celebrated 50 years of corporate history. The logo and celebration can easily relate to the company being in business for 50 years, but for shareholders the goal could easily be a target price of $50 or a gross margin goal of 50%. My bullish thesis supports both goals as legitimate targets.
Image Source: AMD website
$50 Price Target
The company was started in 1969 in Santa Clara, California and went public back on 1972. As one can see from the historical chart, AMD has struggled as a public company. The stock hasn't grown a lot since the mid-'80s having first topped $15 over 30 years ago.
Even more crazy for a $50 price target is that the price would be an all-time record. Back in the internet boom, AMD reached a high of $48.50 on June 5, 2000. The stock followed that up with another run in 2006 hitting a peak above $42 when their data center market share reached a peak of 26%.
Investors looking backwards might miss the forward looking projections here. At $50, the stock would reach a market cap of $55 billion. Currently, AMD trades right around the forward P/S multiple with Intel (INTC) and nearly half the rate of Nvidia (NVDA).
50% Gross Margin Target
A big part of whether AMD ever reaches $50 is the gross margin potential. AMD entered this turnaround with horrible margins. In the course of the last 2 years, the chip company has improved gross margins from the low 30% range to already 41%.
Source: AMD Q1'19 presentation
The company has forecast a target of exceeding 41% this year and 40-44% as a long-term target. Naturally, AMD needs to far exceed these minimal initial targets. Here again, competitors Intel and Nvidia both achieve gross margins in excess of 60%.
