Should AMD Stock Still Be Taken?

The shares of Advanced Micro Devices (NASDAQ 🙂 have lost a bit of luster this year. After outperforming its competitors in 2020, the chip maker is now lagging behind the market.

While the benchmark has managed to gain 6% since the beginning of the year, AMD stock has lost 13%. This reversal was seen by some investors as a sign that the rally, which had raised AMD stock by more than .3,000% in the past five years, is now coming to an end.

AMD Weekly Graphics.

AMD Weekly Graphics.

On the business side, nothing’s wrong with California-based AMD. The company once again provided a strong forecast in January, showing that its biggest competitor Intel (NASDAQ 🙂 continues to grow its market share by taking advantage of production delays.

Revenue in the current quarter will be about $ 3.2 billion (plus minus $ 100 million). Compared to this, the average analyst estimate is at the level of 2.7 billion dollars. The company expects sales growth of 37% for 2021, well above Wall Street expectations.

In an interview with Bloomberg, AMD CEO Lisa Su stated that she did not see any backwinds that could disrupt the company’s growth line:

“Overall demand was high in 2020 and exceeded our plans. All of our businesses are running at full performance.”

AMD, the world’s largest chip maker, has been catching up with Intel in recent years, with the help of advances at Taiwan Semiconductor Manufacturing (NYSE :), which has produced chips on its behalf after falling behind Intel for decades. This strategy helped AMD at a time when Intel was experiencing numerous manufacturing delays and was constantly lagging behind in launching new chips.

Extreme Rapid Rise

In addition to competing with Intel for processors used in personal computers and servers, the US also supplies graphics cards used by some of the world’s largest companies in their game consoles. These consoles include Microsoft’s (NASDAQ 🙂 Xbox and Sony Corp’s (NYSE 🙂 PlayStation products. The game market exploded during the epidemic, with children and young people spending most of their time at their homes.

But despite these favorable market conditions, some analysts point out that AMD’s high-flying stock needs a break, as much of the good news is already reflected in the price.

Wells Fargo Securities analyst Aaron Rakers recently downgraded the AMD stock, lowering its 12-month price target to $ 64 and said the stock had risen too much in a very short period of time. In a note titled “Time to Break,” he wrote for his clients, Rakers added that AMD valuations seem too high and may not support a serious rise. AMD stock is trading at about 50 times this year’s earnings and 40 times the next year’s earnings.

Another trend that investors follow when trading on AMD stock is the state of its rival Intel. Compared to AMD, Intel has gained over 25% this year, and while the company saw strong demand for laptops in the first half of this year, CEO Pat Gelsinger is aiming to regain the company’s leading position in chip manufacturing.

Result

Despite the recent weakness in AMD stock, we still believe the chip maker will recover in the coming weeks, catching up with its peers. According to analysts’ consensus price target, AMD stock could reach $ 103 per share in the next 12 months, potentially a 27% increase from today’s price. Analysts expect the company to continue gaining market share as Intel struggles to bring new products to the market.

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