Skip to Content
Stock Analyst Update

Potential AMD-Xilinx Combination Would Turn Up the Heat

Our fair value estimates remain for both of the technology companies, but we think this deal would give AMD and Xilinx a competitive edge against Intel and Nvidia.

Mentioned: ,

On Oct. 8, The Wall Street Journal reported that Advanced Micro Devices (AMD) is in advanced talks to purchase Xilinx (XLNX) in a deal that could be worth over $30 billion. With Intel having purchased FPGA peer Altera back in 2015 for $16.7 billion, we view this potential tie-up as a way for AMD to bolster its product portfolio with a leading FPGA franchise to drive growth and better diversify its revenue. Narrow-moat Xilinx boasts a stellar margin profile with gross margins near 70% and operating margins in the high 20s, which would be accretive to no-moat AMD’s financials. Key end markets for Xilinx include data centers, 5G infrastructure, and automotive, which would collectively help AMD broaden its reach beyond PC and server CPUs, comparable with the rationale for Intel’s Altera purchase. Our fair value estimate for AMD remains $31 per share and for Xilinx our fair value is $90. With AMD’s shares trading in the mid-80s, we suspect the firm could finance a potential deal with mostly stock, similar to Nvidia’s pending purchase of ARM.

AMD has done a nice job of cleaning up its balance sheet in recent years, with a cash balance improving to $1.8 billion in the most recent quarter from $1.1 billion at the end of 2018, while total debt is currently $690 million (down from $1.25 billion exiting 2018). Based on recent merger and acquisition deals, we think AMD would have to pay at least $34 billion (about a 30% premium from Xilinx’s market cap of $26 billion prior to the Journal's report). Consequently, the firm could take on additional debt to finance the deal.

We view Xilinx’s products as complementary to AMD’s, and we don’t think there would be any major regulatory concerns (other than a roadblock stemming from the U.S.-China tensions).

Morningstar Premium Members gain exclusive access to our full analyst reports, including fair value estimates, bull and bear breakdowns, and risk analyses. Not a Premium Member? Get this and other reports immediately when you try Morningstar Premium free for 14 days.

Abhinav Davuluri does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

Transparency is how we protect the integrity of our work and keep empowering investors to achieve their goals and dreams. And we have unwavering standards for how we keep that integrity intact, from our research and data to our policies on content and your personal data.

We’d like to share more about how we work and what drives our day-to-day business.

We sell different types of products and services to both investment professionals and individual investors. These products and services are usually sold through license agreements or subscriptions. Our investment management business generates asset-based fees, which are calculated as a percentage of assets under management. We also sell both admissions and sponsorship packages for our investment conferences and advertising on our websites and newsletters.

How we use your information depends on the product and service that you use and your relationship with us. We may use it to:

  • Verify your identity, personalize the content you receive, or create and administer your account.
  • Provide specific products and services to you, such as portfolio management or data aggregation.
  • Develop and improve features of our offerings.
  • Gear advertisements and other marketing efforts towards your interests.

To learn more about how we handle and protect your data, visit our privacy center.

Maintaining independence and editorial freedom is essential to our mission of empowering investor success. We provide a platform for our authors to report on investments fairly, accurately, and from the investor’s point of view. We also respect individual opinions––they represent the unvarnished thinking of our people and exacting analysis of our research processes. Our authors can publish views that we may or may not agree with, but they show their work, distinguish facts from opinions, and make sure their analysis is clear and in no way misleading or deceptive.

To further protect the integrity of our editorial content, we keep a strict separation between our sales teams and authors to remove any pressure or influence on our analyses and research.

Read our editorial policy to learn more about our process.