💡 Need fresh investment ideas? Explore billionaires’ portfolios using latest 13F filingsExplore for FREE

Wells Fargo maintains $190 target on AMD amid ZT Systems buyout

Published 2024-08-19, 01:36 p/m
© REUTERS
AMD
-

On Monday, Wells Fargo (NYSE:WFC) reiterated an Overweight rating on shares of Advanced Micro Devices (NASDAQ:AMD), maintaining a $190.00 price target. The firm's analysis follows AMD's recent announcement of its acquisition of ZT Systems, a leading supplier of hyperscale server solutions for cloud computing and AI, for $4.9 billion. This deal includes a $400 million earnout and is structured with 75% cash financing—partly through new debt—and 25% stock.

ZT Systems, which has manufacturing and service operations in the U.S. and Europe, reported a revenue run-rate exceeding $10 billion over the past 12 months, primarily from its manufacturing segment. AMD plans to divest this segment within 12 to 18 months after the deal closes in the first half of 2025. The company intends to retain 1,000 engineers out of ZT's 2,500 total employees, with associated operating expenses around $150 million.

The acquisition is anticipated to be accretive to AMD's non-GAAP earnings per share by the end of fiscal year 2025. This is as AMD aims to boost GPU and CPU sales to counterbalance the incremental costs incurred from the deal. The manufacturing business will be classified as held for sale in discounted operations.

Wells Fargo's assessment highlighted the acquisition's potential to enhance AMD's offerings, including system and software capabilities. However, the firm noted that while the manufacturing asset's value wasn't specified, it could potentially fetch a few billion dollars.

The new debt incurred is expected to be temporary until the manufacturing business is sold, although AMD's leverage remains lower than its peers, suggesting some debt may remain.

The report also pointed out that the true value of the deal might be overshadowed by the difficulty in quantifying the exact increase in GPU sales attributable to the acquisition.

Despite this, Wells Fargo views the acquisition as a strategic move to compete more effectively in system and rack/data center level solutions, even as AMD continues to face a gap in the networking segment.

InvestingPro Insights

Advanced Micro Devices (AMD) has garnered attention with its recent acquisition of ZT Systems and the strategic moves to enhance its market position. According to InvestingPro data, AMD boasts a substantial market capitalization of $246.48 billion, reflecting its significant presence in the industry. The company's P/E ratio stands at 181.66, indicating a high earnings multiple, which aligns with the InvestingPro Tip that AMD is trading at a high earnings multiple. This could suggest that investors have high expectations for the company's future growth and profitability.

InvestingPro Tips also reveal that AMD's net income is expected to grow this year, providing a positive outlook on the company's financial performance. Additionally, AMD's stock has experienced a significant return over the last week, with a 1 Week Price Total Return of 8.62%. This short-term performance, coupled with the anticipation of net income growth, may offer investors a sense of optimism regarding AMD's future prospects.

For those looking to delve deeper into AMD's financials and market performance, InvestingPro offers 15 additional tips, including insights into analysts' predictions, the company's profitability, and stock price volatility. These tips, along with real-time metrics and expert analysis, can be found on the InvestingPro platform, providing investors with a comprehensive toolset for informed decision-making.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.