AMD to Benefit From Partnership with Alibaba

AMD (NASDAQ: AMD) surprised investors and analysts with its announcement of a partnership with Alibaba where the Chinese ecommerce giant will utilize the Radeon Pro GPU technology platform in the cloud servers of Alibaba. With this, the shares of AMD rallied by 4 percent to end the session at $6.75 after trading as high as $7.12 during the session. As of 10:38 AM GMT -4 on October 20, the stock is changing hands at $6.85, up by 1.18 percent or 0.07 points.

The global semiconductor company’s stock surged this year as it is already up by 135.2 percent since the beginning of 2016.

We believe that the partnership with Alibaba could be highly beneficial for AMD. After all, the ecommerce company is a significant player in the cloud infrastructure market of China. According to the Chinese corporation, the partnership with AMD will contribute more diverse GPUs to its cloud computing segment.

According to the CEO and President of AMD Lisa Su, “The collaboration between AMD and Alibaba Cloud leverages the world-class technology and software engineering capabilities of both companies to meet the growing demand for standards-based GPU computing solutions capable of enabling more immersive and intuitive cloud services. Working closely with industry leaders like Alibaba Cloud helps ensure the investments AMD is making in our high-performance graphics and computing datacenter products continue to align with the needs of the broader cloud market.”

We expect that this collaboration with the Chinese giant could also aid AMD when it comes to gaining market share in the expanding market of server GPUs.

Based on the reports by Jon Peddie Research and Mercury Research, the multinational semiconductor company has obtained a huge market share from its rival NVIDIA in graphics add-in card market during the Q2 of the current fiscal year. When it comes to the overall units shipped, AMD had hit approximately 30 percent market share during the Q2, while its market share was at 22.8 percent during the quarter before that, and only 18 percent at the end of last year.

This means that AMD’s market share is constantly growing. Furthermore, the financial results for the second quarter do not include the latest Polaris-based graphics card such as the Radeon RX 480, which we expect could further boost the market share of the semiconductor company.

Advanced Micro Devices is slated to post its third quarter earnings results after the markets close on October 20. Based on the average forecast of 17 analysts covering the stock, AMD’s earnings per share will clock in at around zero. The semiconductor company reported a loss of $0.17 per share during the year-ago quarter. Meanwhile, the highest forecast is for a $0.02 per share profit, while the lowest estimate is for a loss of $0.02 per share.

In terms of revenue, the average estimate of 20 analysts is that it will edge higher by 14.3 percent on a year-over-year basis to reach $1.21 billion. Since the company has delivered an earnings per share surprise in 3 of its recent quarters, there is a high probability that AMD will also surpass analysts’ projections in the third quarter.

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