The Action Alert Plus team reacted favorably Monday to semiconductor designer Advanced Micro Devices’ (AMD) agreement to buy chip and software maker Pensando Systems for $1.9 billion.
Pensando's solutions accelerate networking, security, storage and other services for cloud, enterprise, and edge applications.
“The ‘why’ behind this transaction is it is expected to expand AMD's data center solutions capabilities, allowing it to target what is now one of the fastest growing markets for chip demand,” the AAP team said.
“We also see this acquisition as a response to the stiffening competition in the data center market, given that Pensando’s solutions are reported to deliver between 8 times and 13 times greater performance [than] competitive solutions.”
“[The deal] also shows that even as AMD digests Xilinx, it has the capacity to take on smaller, complimentary acquisitions that add to its technology arsenal,” the AAP team said. In February, AMD acquired fellow chip maker Xilinx for $50 Billion.
“As always, we'll want to hear more on the opportunities AMD sees as well as other synergies, but on its face, we see the Pensando acquisition adding fuel to the revenue growth fire for AMD in coming quarters,” the AAP team said.
Morningstar analyst Abhinav Davuluri is bullish on AMD, giving it a narrow moat and putting fair value at $130. The stock recently traded at $109.40.
“We think AMD benefits from intangible assets related to its x86 instruction set architecture license and chip design expertise,” he wrote in a February commentary.
“We think the firm is well positioned to enjoy data center growth driven by the shift from on-premise to cloud computing. In the mature PC [personal computer] market, we think AMD will also gain share at Intel’s (INTC) expense in the coming years.”
