Shares of Advanced Micro Devices (AMD -0.35%) are down 29% in 2022, but there are no signs of a slowdown in the company's growth. Its first-quarter results were released on May 3, and AMD crushed Wall Street's expectations, thanks to tremendous growth in revenue and earnings. It also issued a solid forecast that points toward another year of eye-popping growth.
The latest market-share numbers for the x86 processor space (which includes processors that are used in computers, servers, consoles, and Internet of Things devices) from Mercury Research tell us just why AMD has been putting up healthy growth quarter after quarter. AMD once again took business away from Intel (INTC 0.64%) in the first quarter of 2022 in key areas that sent its x86 market share to a record high. Let's look at the reasons why this trend could continue and help AMD sustain its impressive growth.
AMD continues to chip away at Intel's dominance
According to Mercury Research, AMD exited Q1 with a 27.7% share of the x86 processor market, an increase of 7 percentage points over the prior-year period. The notebook and server CPU (central processing unit) markets were the key drivers of this impressive growth.
AMD's share of the notebook CPU market increased 4.4 percentage points year over year to 22.5% last quarter. The company's gains in this segment were driven by strong shipments of commercial notebook processors.
The good part is that AMD expects further growth in this segment, thanks to its recent design wins. Its chips have been chosen to power upcoming laptops from many leading OEMs (original equipment manufacturers).
AMD CEO Lisa Su said on the company's May earnings conference call that:
We are well positioned to accelerate our growth in commercial notebooks in 2022 based on the expanded number of design wins on track to launch. Although the PC market is experiencing some softness coming off multiple quarters of near-record unit shipments, our focus remains on the premium, gaming and commercial portions of the market where we see strong growth opportunities, and we expect to continue gaining overall client revenue share.
Su's statement indicates that AMD may be able to weather the soft PC (personal computer) sales environment. Market research firm IDC estimates that the global PC market was down 5.1% in the first quarter of 2022, following two years of robust double-digit growth. AMD, however, was able to post record revenue from sales of mobile processors in the first quarter, and the trend looks set to continue as new laptops powered by AMD processors hit the market.
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More importantly, AMD is focused on pushing the envelope further in the notebook processor space with the launch of its Dragon Range and Phoenix processors in 2023, which will be based on the 5-nanometer (nm) Zen 4 architecture. Intel, on the other hand, is currently on the 10 nm process with its Alder Lake laptop chips. The larger company is expected to jump to a 7nm process in 2023 when its Meteor Lake processors launch.
It's worth noting that Intel's manufacturing process is reportedly denser than the one in which AMD's chips are manufactured. This means that Chipzilla packs more transistors in a smaller area. As a result, Intel's processors are likely to be more competitive next year as they can deliver more computing power and consume less energy at the same time. Processors based on a denser process can carry out more calculations while generating less heat.
But AMD enjoys the upper hand right now as its latest laptop processors were based on a 6nm process. Therefore, it could continue to take share away from Intel until Chipzilla turns up with a more competitive process node.
The server market is another notable catalyst
AMD's share of CPUs used in servers increased to 11.6% in the first quarter, up 2.7 percentage points year over year. The chipmaker has gained quarterly server market share for three years now, and Su pointed out on the earnings call that AMD has "more than doubled server processor revenue year over year in eight of the last 10 quarters."
AMD's influence on the server market should keep growing as cloud service providers are increasing the deployments of its EPYC processors, with the likes of Amazon, Alibaba, Baidu, Microsoft, and Google using its chips in 70 new virtual servers last quarter. More importantly, AMD's upcoming server processors could help it take more share away from Intel.
AMD's current generation EPYC Milan processors are manufactured using a 7nm process. With Intel's competing Sapphire Rapids server chips running into delays and yet to be made widely available, AMD has a great opportunity to corner a bigger share of the server market. What's more, AMD is expected to launch its 5nm EPYC Genoa processors this year, which should be more powerful and efficient, compared to the Milan processors, since they'll be made using a more advanced process.
All this indicates that AMD's server business is built for more upside, and further progress in this area could substantially boost the company's revenue, given the massive opportunity at hand. As such, it won't be surprising to see AMD keep up its impressive growth for years to come.
The company forecasts a 60% jump in revenue this year to $26 billion, and analysts are upbeat about its long-term prospects, as well, since they expect AMD's earnings to increase at an annual rate of 33% for the next five years. That's why investors who haven't taken advantage of the drop in AMD's shares yet should consider buying this semiconductor stock. It's trading at 38 times earnings now, which is a big discount to its five-year average multiple of 107.
