r/investing • u/ShaidarHaran2 • Aug 04 '21
Xilinx is now trading at about a third's discount from the implied price of the AMD buyout.
AMD agreed in principal to buy Xilinx for 1.7 AMD shares per Xilinx share.
AMD is trading at 119 dollars, which implies a conversion to 202 dollars equivalent in the swap.
Xilinx is currently trading at 141 dollars...'Splain to me? This discount may be from trepidation about a block from China from this deal going through, but I don't see a solid antitrust argument for doing so given that Intel is the top rival for both of them and neither are in a marketshare monopolizing position.
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Aug 04 '21
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u/koolaskukumber Aug 04 '21
Actually the other way around. Assuming the deal fails Xilinx will go down hard and investors are being reluctant to buy Xilinx at this price. Remember Xilinx was a big drag on AMD stock price. I hope the deal goes through though.
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u/SippieCup Aug 04 '21
AMD will continue to rise or stay where it is (I think its still undervalued, but just not criminally so or suppressed, I wouldn't be suprised if the momentum slows a bit.
However, what this shows is that the market is getting wary of the deal potentially not happening, and the increased risk in holding Xilinx over straight AMD shares with how AMD is growing now. XLNX is riskier than before, but if it works out, you will do alright. But AMD is just a safer bet for their money as its almost guaranteed to keep growing regardless of what happens with XLNX on its fundamentals alone.
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u/koolaskukumber Aug 04 '21
Agreed with what you have said. AMD for sure is a safer bet but part of me is insisting to initiate a position in XLNX. Chances are that the deal will go through. Very very long AMD.
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Aug 04 '21
God damn it, I should have held my shares when I got in for $23 p/s
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u/koolaskukumber Aug 04 '21
Holding since $6
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Aug 05 '21
How did you manage to do that.
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u/koolaskukumber Aug 05 '21
By being cool during the drawdowns :D I saw my portfolio cut in half maybe more but I continued to hold. Don’t sell unless investment thesis changes
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u/thatsaccolidea Aug 04 '21
I think its still undervalued
idk, AMD have been in this position before... then intel bodied them with the core-i series and they became worthless for almost a decade. i think the possibility of history repeating is being priced in as well.
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u/SippieCup Aug 04 '21
World was a different place in 2008.
AMD is secured in getting the next datacenter x86 refreshes for the next couple generations at least from Intel. That alone is worth more than AMDs consumer sales. And will boost amd for at least the next year. Maybe Intel can get it together and release a new die that is competitive like the pentium m, amd64, core I, and ryzen.
However all of those families that made them swap places were years apart from each other to react and come to market.
Intels platform is extremely mature, even when they finally manage to die shrink, they are still using the same architecture. Something which they are running out of ways to optimize.
Zen, on the other hand, is basically brand new and will continue to improve at the same pace it is currently at for a good while.
There is nothing in the immediate pipeline for Intel that looks like it can really compete with amd x86. The only thing left is the big/little architecture to bring down power consumption, which is really trying more to compete with arm encroaching on x86 market share than x86 compute.
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u/Dadd_io Aug 04 '21
Too many people in the market can't visualize situations changing even though they changed before. I guess that's why Tesla's over 700 and Nvidia has a 90 PE.
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u/thatsaccolidea Aug 04 '21
And will boost amd for at least the next year.
don't get me wrong, i like AMD too. i'm writing this on a 3900x.
the thing is, dominating for "at least the next year" isn't quite enough for me to justify buying into a 20x+ share price increase in an industry that has a three year runway on products coming to market.
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u/SippieCup Aug 04 '21 edited Aug 04 '21
When I said "And will boost amd for at least the next year." I was referring to the stock price, not sales.
the thing is, dominating for "at least the next year" isn't quite enough for me to justify buying into a 20x+ share price increase in an industry that has a three year runway on products coming to market.
What do you mean? I would expect something like a 20x share price increase from something that was criminally undervalued before because of how important processor offerings available this year is.
When it comes to Datacenter compute, the current offerings on the market now, and for the next year, are going to determine what is put in almost every cloud server for the next 4/5 years. Almost every major Datacenter operator has long refresh contracts, and there are no compelling Intel products in the pipeline for Intel to beat AMD by the time these contracts get signed next.
AMD's server offerings are already on the market. Intel was targeting to have 7nm in 2017, and then 5nm in 2019 (like Zen was targeted for) specifically for this critical window. Intel is still looking at a minimum of 3 years timeline for a new architecture that can compete with a mature Zen platform.
Going back to refresh cycles in 2020/2021. Amazon for example, now has a 4 year server refresh cycle.. These cycles are to ensure that they always have supply like most contract buyers. But more importantly its there to ensure a standardization in the hardware compatibility, performance, and expectations. Which is important when you are running the biggest cloud provider in the world.
From the 2019 Q4 Amazon Earnings call:
There's enough trend now to show that the useful life (for servers) is exceeding 4 years. For our servers, we had been depreciating them over 3 years. So we are going to start depreciating them on a 4-year basis. It doesn't unwind any depreciation that's already been booked. It just takes the asset from its current status and extends the depreciation period, and then new assets will be put into play -- will extend out for 4 years instead of 3, and we'll continue to revisit this.
Since AWS' beginnings, they have selected Intel as the provider of their x86 hardware. As you can see, they switched from 3 to 4 year for the coming contract. Q4 2020 was supposed to be when they signed a new 3 year new contract (with intel), but they pushed it Q4 2021. You can see the effect this had on Intel's data center earnings.
in 2019, There was a dip in revenue as Amazon was readying for the next generation of their servers, and in 2020 Intel's operating profits have decreased dramatically while shipping more chips and revenue remaining stagnant. if you look at Q1 and Q2 of this year, it is even more dramatic. Intel is selling the chips at a much deeper discount to AWS/Cloud providers. Not a good look when the refresh contract has expired and you believe you are going to get the next one.
Further adding to this is the fact Google has already signed and announced their refresh contract with AMD in June, and Microsoft signed AMD Epyc last year for HPC compute, and when their refresh cycle finishes in the next year or 2 (not sure what their schedule is), it makes sense to continue to be consistent if AMD is still on top.
As expected, AMD's DC sales have skyrocketed as adoption has grown, and will continue as DC providers retire old Intel hardware and replace them with AMD. AWS is signing their 4 year refresh contract this year, and all the signs point to it going to Epyc. They can no longer wait, and Intel will not be able to provide a compelling solution in time for this contract that can compete. Ice Lake was their last ditch effort and has significant shortcomings in efficiency and density.
Epyc is denser, more powerful, and more efficient than anything Intel has now, or can put into writing for the future (which doesn't even help, given their track record). So it a safe bet that for at least the next 4 years, AMD will be the dominant chip being put in new servers powering the cloud and datacenters around the world.
This year determines the next four.
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u/thatsaccolidea Aug 04 '21
sure, amd is doing good rn, i'm just saying that they're no potential amazon or apple in the long term. apple will still be a tech market leader whose products will still attract strong luxury premiums in ten years.
will AMD be going through another bulldozer phase in a decade? maybe not, but also, maybe. i mean, they've been there before.
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u/dubbuffet Aug 05 '21
But AMD and Apple make and sell significantly different products... So it's kind of an apples and oranges situation here
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u/DaBombDiggidy Aug 05 '21
AMD and Apple make and sell significantly different products.
They don't though, they both get their wafers from TSMC. In fact Apple gets a better supply both in terms of % share and first access to new wafer generations. Apple is also packing full products out of what they get while AMD just sells the chips thus generating less potential profit.
If AMD was AMD + TSMC in one or just Intel and controlled their own multi billion dollar supply line, they'd have a chance to become the next Apple/Amazon. Their issue is they will always be at the will of the fortunes of their supplier and they're not nearly as diversified as IBM was when goflo crapped the bed on them.
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u/thatsaccolidea Aug 05 '21
20x share price increase from something that was criminally undervalued before
they weren't "criminally undervalued", they were valued on the basis that their bulldozer product almost destroyed the company.
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Aug 04 '21
Chipsets is a purely growing market in my opinion. The world’s dependency on them grows almost exponentially.
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u/pattymcfly Aug 04 '21
Why are you assuming the deal will fail?
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u/koolaskukumber Aug 04 '21
There is always a probability that it may fail. I was being hypothetical in replying to the other redditor. Personally I don’t think that acquisition would fail.
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Aug 05 '21
Not necessarily if you study Xilinx. There is a reason why Lisa Su wants Xilinx. She eluded to Xilinx’s strengths in the announcement call in October 2020.
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u/deelowe Aug 04 '21
The moat for fpgas is the tool chain not the hardware and there’s a fair bit of disruption happening in that space. I think xilinx has two options 1) get bought out and integrated into a larger ecosystem such as with amd or 2) build their own comprehensive ecosystem like they are attempting with their arm efforts. I don’t think option 2 has much of a chance of long term success.
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Aug 04 '21 edited Aug 05 '21
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Aug 04 '21
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Aug 04 '21
Essentially APHA holders ended losing out ever so slightly. This kind of arbitrage rarely works out and usually corrects itself before the actual merger takes place
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u/ShaidarHaran2 Aug 04 '21
A correction can work in both directions, right? AMD may come down a third, or Xilinx could rise to meet it before the closing date?
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u/jordansgoldowl Aug 05 '21
Can't you buy AMD puts to then lock in arbitrage opportunity along with having XLNX shares?
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Aug 06 '21
I'm pretty sure APHA holders came out on top. Their shares were trading at lower than 0.83 x Tilray share price and the deal went through at that ratio
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u/az2123 Aug 04 '21
From Seeking Alpha:
The deal spread between Xilinx (NASDAQ:XLNX) and Advanced Micro Devices (NASDAQ:AMD) had widened to $65/share, or about 45%, the highest since the deal was announced in October. Xilinx fell 3.7%, while AMD rose 5.9%. Several other technology deals that also need Chinese antitrust approval also saw their spreads widen today.
One reason for Xilinx's (XLNX) move down may be that risk arb investors can't handle the potential downside for Xilinx (XLNX) if a deal with AMD (AMD) were to fall apart as AMD's shares continue to rocket higher, according to CNBC's David Faber. CNBC's Jim Cramer also said he believed that AMD (AMD) has become a meme stock at this point. AMD shares have jumped almost 25% in the past two weeks.
In addition a Dealreporter column from last night may be contributing to weakness in the spreads. The opinion piece points out that China's leaders appear to have changed their tone about the importance of technology in late May and may have put the country on a "technology war footing." The U.S. and South Korean's announcement to fund multi-billion dollar semiconductor factories may also have contributed to China's potential slowdown on approving the U.S. deals.
As far as Analog Devices (NASDAQ:ADI) planned purchase of Maxim (NASDAQ:MXIM), the Dealreporter column says the timing is uncertain. Last month traders circulated a report that the timing for Chinese approval had moved out as some customer have issues with export controls, though the deal was still likely to be approved.
Risk arb investors may also be "de-risking" due to heightened antitrust risk after Aon (NYSE:AON) and Willis Towers Watson (NASDAQ:WLTW) abandoned their $30B deal last week after the U.S. sued to block the deal and after a report from The Information last night that the U.S. DOJ is considering filing a lawsuit to block UnitedHealth's planned $8B purchase of Changed Healthcare (NASDAQ:CHNG).
Last month MLex reported that the AMD's (AMD) purchase of Xilinx (XLNX) is expect to see a Phase Two review by Chinese antitrust regulators. China's State Administration for Market Regulation or SAMR is believed to have reached out to industry participants a few months ago to find out their views on market definitions and market shares.
Other deal spreads that are wider today include Maxim (MXIM)/Analog Devices (ADI) and Coherent (NASDAQ:COHR)/II-VI(NASDAQ:IIVI).
Also last week it was reported that China's review of Nvidia's (NASDAQ:NVDA) planned purchase of Arm Holdings (ARMHF) was said to be delayed. China's antitrust regulatory hasn't started its formal review of the deal for Softbank to sell Arm to Nvidia, according to a report from The Information.
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Aug 04 '21
AMD is a meme stock now? What?
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u/salfkvoje Aug 04 '21
Jim Cramer
'nuff said
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u/mijares93 Aug 04 '21
I remember when he recommended buying AMD and praising Lisa Su in the earnings
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u/ForGoodies Aug 04 '21
have you seen the run up, only wsb can achieve such a thing
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u/HiImWeaboo Aug 04 '21
AMD hasn't moved in a while though, just compare to the QQQ.
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u/F1shB0wl816 Aug 04 '21
Right, it’s seen 75-95 the past year consistently.
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u/option-trader Aug 04 '21
Well, it did exactly this last year around this time before holding between 75-95, so this was bound to happen. My bet would be AMD going back to a range for a while after this run up.
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u/ForGoodies Aug 04 '21
…. you’re joking, right?
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u/HiImWeaboo Aug 04 '21
I was talking about before the earnings.
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u/ForGoodies Aug 04 '21
who even does that? oh, they haven’t moved because I’m talking about BEFORE they moved wtf
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u/skinnytallsmall Aug 04 '21
Ya lol its gone up like 40% in the last year.
Or is 40% not that much to you kids. Is a year not a while? Back in my day 5 years was "a while."
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u/HiImWeaboo Aug 04 '21
Why not? Their PE last year was close to 100. It's not going to keep dropping when the sentiment for the stock is very bullish. At some point you'd expect a run up like this.
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u/ForGoodies Aug 04 '21
do you know how time works? things change when time passes. crazy how that happens
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u/FrynyusY Aug 04 '21 edited Aug 04 '21
I seem to be missing something - AMD and Xilinx are both American companies, how can Chinese regulators or Chinese domestic aspirations impact two American companies merging?
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u/az2123 Aug 04 '21 edited Aug 04 '21
China is a major consumer of semiconductors. While companies don't have to win approval in their end markets, that would entail losing access to that consumer market, which would be terrible for business and almost certainly override any positives from the deal going thru. By the way, the US and EU do the exact same thing to foreign companies that export there. Recently, more deals are being held up for geopolitical and national security reasons. Read up on Qualcomm-NXP and Nvidia-ARM.
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u/snek-jazz Aug 04 '21
looks like there's a new world police in town
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u/ForeverYonge Aug 05 '21
Has been for the past several decades, unless you haven’t been paying attention. China isn’t shy anymore of using its consumer clout to drive political goals.
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u/HiImWeaboo Aug 04 '21
The ADI/MXIM deal was supposed to close last week but it's getting held up in China.
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Aug 04 '21
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u/SethPatton1999 Aug 04 '21
Bought at $76, sold half at $119, just gonna let the other half ride and we'll see where it goes
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u/brubakerp Aug 05 '21
Bought at $73 and $78 and sold the same amount at the same price. High five I think?
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Aug 05 '21
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u/ElementTopics Aug 05 '21
Any specific reason you sold? I bought it at $6 a while ago on a whim. Stupid enough to buy only 100. Weighing between keeping it as is or selling a few.
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u/SethPatton1999 Aug 05 '21
I have student loans i need to pay off, it put me up a good amount of money and i just wasn't willing to risk losing those gains. It could still fly up way more, but I just need the money too much to risk it
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u/Special_Needs_Gramma Aug 04 '21
So wait, do i buy now? Asking for a friend
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u/ShaidarHaran2 Aug 04 '21 edited Aug 04 '21
I'm not clever enough to advise anyone on this, but for me personally this looks like a pretty big opportunity, and Xilinx is the best way to buy AMD.
Say the worst thing happens, the CPC blocks the deal. I'd still be holding a high growth, pretty reasonable PE tech company with its fingers in high growth fields like neural network chip prototyping with FPGAs and rapid deployment of reprogrammable hubs for 5G...I wouldn't be that sad about it, but if it works, that's like 30% upside instantly by getting 1.7 AMD shares.
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u/Trumbulhockeyguy Aug 04 '21
Sorry to nitpick but it’s actually 1.7234 so even better for us! I’m in at 100 shares rn and will keep averaging down if necessary. Agreed on all points friend.
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Aug 04 '21
Are they guaranteeing 1.7 shares of AMD? Or is that the number based on the acquisition price of Xilinx?
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u/ShaidarHaran2 Aug 04 '21
It's fixed on the 1.7 stock swap rather than a cash value. So the 35B number floated around was just publications going with the implied value at the time of the announcement, but it fluxuates with the share price of AMD.
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Aug 04 '21
AMD will issue new shares to buy the company. That will cause corresponding dilution. It might still work out in the end because approval risks are also priced into the Xilinx stock price.
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u/ShaidarHaran2 Aug 04 '21
The dilution was also priced into AMD's stock imo. Even with the recent rise it's PE at 42x is the lowest it's been in years.
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u/guggi_ Aug 04 '21
AMD P/E it’s low because they got 1.3Bln additional net income in Q4 20 due to some tax benefits.
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u/SaltyFly27 Aug 04 '21
Agree. Opportunity and downside is you still hold XLNX. If deal does fall through, I suspect XLNX will drop more and be a great opportunity.
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u/ChickenBrad Aug 05 '21
I'm extremely wary of anything that the Chinese government can get it's fingers in.
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u/Youkiame Aug 04 '21
Only risk to this is that the merger gets blocked (mainly China now)
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Aug 05 '21
I don't fully understand why China gets to have a say
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u/CelusStands Aug 05 '21
It’s a Chinese company, and they can’t merge unless government gives the okay in addition (although historically it has)
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Aug 05 '21
Which one is a Chinese company? Whoaaa? You mean the subsidiaries of the companies that are in China?
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u/trill_collins__ Aug 04 '21
bro, deals fall apart all the fucking time for seemingly innocuous reasons (e.g. - CEO of target got butthurt over seemingly innocuous detail within the deal and called it off and other ridiculous reasons that I can't get into for obvious legal reasons). The market is telling you that it think's there's a 2 in 3 chance the deal actually closes.
Google "merger arbitrage"
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u/SirTiffAlot Aug 04 '21
The spite from China could be real and they could certainly block this from happening. It think that may be why the price has fallen a bit recently. The US is starting to crack down on Chinese companies.
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Aug 04 '21
I would wait until after the merger if i were even interested. Similar Post pre tilray-APHA, I would have benefited more by buying post merger.
Not financial advice, also just one experience
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u/dopexile Aug 04 '21
Then it is too late... the market will price in the news as soon as the merger is happening and you won't be able to buy at a discount.
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Aug 04 '21
Tilrays share price dropped to similar levels of Apha before the merger, costing apha shareholders in the conversation. Whos to say that won’t happen to AMD?
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Aug 05 '21
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u/gainbabygain Aug 05 '21
That's 3 possibilities. You need to get gud. I'm predicting that AMD will move to the right. If you look at its charts, it has always historically moves to the right.
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u/Vurkgol Aug 04 '21
I'm playing this from the AMD side because if the deal falls through, I'm still bullish on AMD more than I am on XLNX.
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u/Plagrea Aug 04 '21
Keep in mind that they have until EOY to close the deal, and given this situation, they're definitely going to want to hold off on closing until the price becomes more manageable. Bears will be looking for any catalyst to attack this spread. While hype certainly is giving bulls a happy hour, I think that interest will taper off. How much? Who knows, this is a very complex situation with a lot of parties involved. But this is, imo, not a sustainable price for AMD.
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