Advanced Micro Devices to Acquire Rival Xilinx for Over $30 Billion; Target price $120 in Best Case

American chipmaker Advanced Micro Devices (AMD) is in advanced talks to acquire its rival semiconductor manufacturing company Xilinx in a deal that could be worth over $30 billion, the Wall Street Journal reported, citing people familiar with the matter.

According to the WSJ, both the chipmakers are discussing a deal that could come together as early as next week. However, there is no assurance that they will for sure ink the deal.

AMD’s shares fell 2.5% to $84.33 in pre-market trading on Friday; however, the stock is up about 90% so far this year.

Advanced Micro Devices (AMD) stock forecast

Twenty-five analysts forecast the average price in 12 months at $83.78 with a high forecast of $120.00 and a low forecast of $62.00. The average price target represents a -3.16% decrease from the last price of $86.51 From those 25, 12 analysts rated “Buy”, 12 rated “Hold” and one rated “Sell”, according to Tipranks.

Morgan Stanley target price is $73 with a high of $95 under a bull scenario and $39 under the worst-case scenario. Jefferies boosted their stock price forecast on Advanced Micro Devices to $100 from $95. Deutsche Bank boosted their target price on Advanced Micro Devices to $70 from $50 and gave the company a “hold” rating in July.

Other equity analysts also recently updated their stock outlook. In July, Barclays boosted their target price on Advanced Micro Devices from $50 to $55 and gave the company an “equal weight” rating. At last, Royal Bank of Canada boosted their target price to $84 from $71.

Analyst view

“Advanced Micro Devices (AMD) continues to execute on its product roadmap while Intel experiences process technology delays on 10nm server and supply shortages at the low end of the PC market,” said Joseph Moore, equity analysts at Morgan Stanley.

Zen drives further share gains for AMD, as we estimate the company gaining share in desktop, notebook and server processors in 2020 and 2021. We model Computing and Graphics revenue of $5.9bn (up 25.9% y/y) and Enterprise, Embedded and Semi-Custom revenue of $3bn (up 46.5% y/y).”

Upside and Downside Risks

Upside: 1) PC and Zen server share gain accelerates as Zen adoption picks up; Intel’s competitive response at 10nm is less impressive than expected. 2) Console cycle turns out to be stronger than expected – highlighted by Morgan Stanley.

Downside: 1) Intel’s server CPUs for 2020 (Cooper Lake in 1H on 14nm and Ice Lake in 2H on 10nm) stifle AMD’s momentum and allow it to regain share. 2) AMD loses graphics share to NVIDIA. 3) Console cycle underperforms expectations.