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Time to Buy AMD's Stock After Announcing $4.9 Billion Acquisition of ZT Systems?
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AMD’s (AMD - Free Report) stock was up +3% in this morning's trading session after announcing plans to acquire private technology firm ZT Systems for $4.9 billion.
The deal is expected to close in early 2025 and should help AMD compete against Nvidia (NVDA - Free Report) regarding its artificial intelligence portfolio. To that point, ZT Systems specializes in data center infrastructure which has become critical to the AI ecosystem with Nvidia being the market leader.
ZT Systems Overview
Founded in 1994, ZT Systems is a New Jersey-based company that engineers and manufactures compute and storage solutions for hyperscale cloud computing and internet infrastructure providers.
ZT Systems’ specialties also extend to AI and machine-to-machine transactions with the company generating $10 billion in revenue last year. Notably, AMD CEO Lisa Su believes the addition of engineers from ZT Systems will allow AMD to quickly test and roll out its latest AI graphics processing units (GPUs) at the scale cloud computing giants such as Microsoft (MSFT - Free Report) require.
Monitoring AMD’s Balance Sheet
AMD plans to pay for 75% of the ZT Systems acquisition in cash which should roughly amount to $3.67 billion. Considering such, It’s noteworthy that AMDcurrently has $5.34 billion in cash and will complete the remainder of the ZT Systems purchase in stock offerings. Furthermore, AMD has $67.88 billion in total assets which is nicely above its $11.34 billion in total liabilities.
Image Source: Zacks Investment Research
AMD’s Growth Trajectory
Striving to expand its reach as a chip leader, AMD’s total sales are now projected to be up 12% in fiscal 2024 and are expected to climb another 26% in FY25 to $32.18 billion.
Image Source: Zacks Investment Research
Annual earnings are forecasted to jump 26% this year to $3.35 per share versus EPS of $2.65 in 2023. Even better, FY25 EPS is projected to climb another 54% to $5.17.
Image Source: Zacks Investment Research
AMD Performance Comparison
Despite its attractive growth trajectory, AMD shares are only up +3% this year thanks to today’s spike which has extended a recent rally over the last week. With the S&P 500 and Nasdaq up just over +15% in 2024, AMD has largely lagged Nvidia’s stock as well which has skyrocketed more than +150%.
Still, AMD is sitting on +64% gains in the last two years which has topped the broader indexes but widely trails Nvidia’s +643%.
Image Source: Zacks Investment Research
AMD Valuation Comparison
At current levels, AMD trades at 44.3X forward earnings and at a premium to the S&P 500’s 23.4X. That said, AMD trades near Nvidia’s 46.3X and its Zacks Electronics-Semiconductors Industry average of 42.5X.
More intriguing is that AMD trades well below its five-year high of 107.2X forward earnings and at a discount to the median of 52.4X during this period.
Image Source: Zacks Investment Research
Bottom Line
AMD’s stock currently lands a Zacks Rank #3 (Hold). Although AMD’s YTD performance has lagged the broader market while also trading at a premium, its growth trajectory does suggest more upside.
It’s very plausible that long-term investors will be rewarded seeing as AMD has a strong balance sheet and the acquisition of ZT Systems could significantly boost its top line and AI data center expansion.
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Time to Buy AMD's Stock After Announcing $4.9 Billion Acquisition of ZT Systems?
AMD’s (AMD - Free Report) stock was up +3% in this morning's trading session after announcing plans to acquire private technology firm ZT Systems for $4.9 billion.
The deal is expected to close in early 2025 and should help AMD compete against Nvidia (NVDA - Free Report) regarding its artificial intelligence portfolio. To that point, ZT Systems specializes in data center infrastructure which has become critical to the AI ecosystem with Nvidia being the market leader.
ZT Systems Overview
Founded in 1994, ZT Systems is a New Jersey-based company that engineers and manufactures compute and storage solutions for hyperscale cloud computing and internet infrastructure providers.
ZT Systems’ specialties also extend to AI and machine-to-machine transactions with the company generating $10 billion in revenue last year. Notably, AMD CEO Lisa Su believes the addition of engineers from ZT Systems will allow AMD to quickly test and roll out its latest AI graphics processing units (GPUs) at the scale cloud computing giants such as Microsoft (MSFT - Free Report) require.
Monitoring AMD’s Balance Sheet
AMD plans to pay for 75% of the ZT Systems acquisition in cash which should roughly amount to $3.67 billion. Considering such, It’s noteworthy that AMD currently has $5.34 billion in cash and will complete the remainder of the ZT Systems purchase in stock offerings. Furthermore, AMD has $67.88 billion in total assets which is nicely above its $11.34 billion in total liabilities.
Image Source: Zacks Investment Research
AMD’s Growth Trajectory
Striving to expand its reach as a chip leader, AMD’s total sales are now projected to be up 12% in fiscal 2024 and are expected to climb another 26% in FY25 to $32.18 billion.
Image Source: Zacks Investment Research
Annual earnings are forecasted to jump 26% this year to $3.35 per share versus EPS of $2.65 in 2023. Even better, FY25 EPS is projected to climb another 54% to $5.17.
Image Source: Zacks Investment Research
AMD Performance Comparison
Despite its attractive growth trajectory, AMD shares are only up +3% this year thanks to today’s spike which has extended a recent rally over the last week. With the S&P 500 and Nasdaq up just over +15% in 2024, AMD has largely lagged Nvidia’s stock as well which has skyrocketed more than +150%.
Still, AMD is sitting on +64% gains in the last two years which has topped the broader indexes but widely trails Nvidia’s +643%.
Image Source: Zacks Investment Research
AMD Valuation Comparison
At current levels, AMD trades at 44.3X forward earnings and at a premium to the S&P 500’s 23.4X. That said, AMD trades near Nvidia’s 46.3X and its Zacks Electronics-Semiconductors Industry average of 42.5X.
More intriguing is that AMD trades well below its five-year high of 107.2X forward earnings and at a discount to the median of 52.4X during this period.
Image Source: Zacks Investment Research
Bottom Line
AMD’s stock currently lands a Zacks Rank #3 (Hold). Although AMD’s YTD performance has lagged the broader market while also trading at a premium, its growth trajectory does suggest more upside.
It’s very plausible that long-term investors will be rewarded seeing as AMD has a strong balance sheet and the acquisition of ZT Systems could significantly boost its top line and AI data center expansion.