MarketWatch First Take: The AMD that investors bet on is finally here

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Advanced Micro Devices Inc. has finally achieved many of its big goals that investors have been banking on over the past few years, as they drove its shares to become the biggest gainer in the S&P500 for two years in a row.

But now it faces a conundrum going forward.

On Tuesday, AMD reported a record fourth quarter, topping $ 3 billion in revenue for the first time to produce a record for full-year revenue of $ 9.76 billion, up 45% from the previous year. AMD AMD, +0.62% produced record profit as well, and predicted big gains from these record results in the year ahead.

Yet shares sat basically still in after-hours trading — actually down just a bit. And that is where the problem is now for AMD investors: What happens next?

The company has been riding high on new chip families based on a new architecture, but the biggest hopes were around the company’s plans to re-enter the server market, which began in 2017 with a new Epyc chip. AMD is making big progress in that large and fast-growing market, and is about to launch its third-generation server/data-center chip family, code-named Milan. AMD said sales of chips sold to the data center were in the high-teens percentage of total revenue, but it still will not break out those sales.

“We are happy with the progress in the data-center business … 2020 was a strong year for us. We do see a significant growth into 2021,” AMD Chief Executive Lisa Su, said on the analyst call Tuesday. “I think there are a number of drivers … first of all, I think we’re seeing the cloud business strengthen for us.” She added later that AMD now has deeper customer relationships as a result of the positive reception to its products.

AMD’s stock was the biggest performer in the S&P 500 SPX, -0.15% for both 2019 and in 2018, as the company began to show results.

Revenue growth was 45% in 2020, but the company’s forecast of 37% revenue growth for full-year 2021 shows that the law of large numbers is starting to take effect, resulting in slower gains.

Another issue at hand is that many on Wall Street believe that AMD has benefited by the missteps of its biggest rival, Intel Corp. INTC, -0.41%. Now that Intel’s highly regarded new CEO, Pat Gelsinger, is about to take the helm, many are becoming jittery that a resurgent Intel could eventually make mincemeat of AMD.

“Intel’s white-knight CEO change has impacted the AMD narrative a bit in recent days as the AMD story hinges around them maintaining and growing their competitive position over the long term, hence newfound Intel hope has been coming somewhat at the expense of AMD, ” said Stacy Rasgon, a Bernstein Research analyst, in an earnings preview to clients.

With the stock currently trading at around 50 times Wall Street’s current estimates for 2021, investors are faced with a conundrum over determining how much more upside can they expect from AMD going forward. It’s a tough call.