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All My Dollars

Written by Brian Hicks
Posted November 3, 2005

Last week, I wrote about AMD and how I think they are positioning themselves for a real run at Intel. As I run the Asian Investment Desk here at Wealth Daily, my analysis stemmed mainly from the California-based firm's significant forays into the Chinese computing game.

If you recall, AMD is licensing the x86 Geode chip to Beijing University for use in its teaching labs. The Geode is a basic model, similar to AMD's high-end Athlon and Intel's Pentium in its basic instruction set.

This will introduce many budding engineering minds to AMD's brands and technology by giving them practice with an entry-level model.

And you can bet that AMD will hire many of those engineers as Beijing University becomes a sort of farm team, developing talent for the top while AMD retains intellectual property rights for the school's x86 project work.

Another Motivating Development

It's nice to help folks out. In a real way, to bring people-knowledge is to give them the stuff of life. The world's most elaborate infrastructures now exist in invisible swarms of electrons transmitting packets of information at light speed. Yet there are still many for whom this world will remain obscure, and who do not currently receive the benefits of the Digital Age.

Therefore, AMD is spearheading a multi-company effort to bring computing power to half of the people in the world by 2015. Given a projected population of 7.2 billion, that's a massive undertaking.

Yahoo and Radio Shack are on board for production and sponsorship, and the Massachusetts Institute of Technology, one of the world's top engineering brain trusts, is contributing know-how.

Thin means portable, and it is socially and economically smart for AMD to take such a step, as experts predict that the thin-client market will expand by 20% annually for years to come.

Wyse Decision

Through the 50x15 project, AMD hopes to produce a durable laptop computer that will be available for $100, mainly to children in poor countries through sponsorship agreements. Now they're teaming up with Wyse Technology, producers of thin computing devices.

Wyse provides slim-profile solutions to some of the corporate world's heaviest players, both to tech firms and to those who simply realize the importance of high mobility in today's international trade.

41 of the Fortune 100 are Wyse Technology clients.

Microsoft has named Wyse their "Embedded Partner of the Year" for 3 years running.

These are heavyweight credentials that make a strong addition to the 50x15 squad and AMD's own personal list of allies in its run to beat Intel.

Still Asleep

AMD's recent market response looks bullish, but not as bullish as I think it should be.


 

Believe it or not, AMD was trading at the same level in 1984. I think this reflects underappreciation of AMD's unfolding opportunities in high-growth markets around the world.

One of the key reasons that the high-growth factor is overlooked is that the market currently does not exist. MTV didn't have an African-based network until this past year, and I'll bet Apple doesn't spend much on iPod billboards in Soweto.

AMD is creating its own market by cultivating a generation of users who know its name.

As with the sponsorship of university-level Chinese engineering programs, AMD is acting in the present to secure its future.

Priced for Growth

AMD is trading at a high price-to-earnings ratio of 225, meaning the market is pricing it for superior growth in the coming years.

With a market cap of $9.17 billion and current gross revenue at $5.27 billion, AMD trades slightly over 1.7X revenue. And with a cash position of $1.34 billion, AMD has the capital to take it to the next level.

Combine the cash capital with the intellectual capital it's acquiring in China, and we have all of the makings of a stock that'll grow 25% a year for the next ten years!

I love it.

And so does Wall Street.

Analysts covering the stock estimate AMD will grow its EPS 100% between 2005 and 2006, going from a net of $0.39 per share to over $0.78 per share.

Growth stock analysts typically value a stock by multiplying a stock EPS growth rate to its current year's EPS estimate. If we take 100 and multiply it by 0.39, we come up with a price target of $39.

That's a 62% premium to its current price of $24. If it does half of that, I'll be happy.

Advanced Micro Devices (AMD - NYSE) is a buy at current levels under $25 a share.

- Sam Hopkins

 


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