Advanced Micro Devices, Inc. (AMD) has surprised PC enthusiasts and investors alike with its upcoming new line of microprocessors. AMD is an American multinational semiconductor company based in Austin, Texas and Santa Clara, California that develops computer processors and related technologies for business and consumer markets. The majority of AMD’s sales are in the computer market via CPUs and GPUs. AMD ac-quired graphics processor and chipset maker ATI in 2006 in an effort to improve its positioning in the PC food chain. In late 2018 the company unveiled its next generation 7 nanometer server chip it called “Rome,” which it plans to ship in mid 2019. Analysts were told these would be incredibly fast processors. Meanwhile its largest competitor, Intel, is still on 10 nanometer technology in 2019. In the semiconductor world, the smaller the nanometer the better and more efficient the parts are.
Fast forward to today and AMD has delivered on its product. Announced earlier this week by AMD CEO Lisa Su at her keynote at E3 in Los Angeles, the company claims that its new stack of “7nm-based Ryzen 3000 chips are competitive with Intel’s higher-clocked CPUs in games, and dominant in multi-tasking chores.” The stock rallied 10% following a highly favorable reception for the new products. Furthermore, Microsoft announced that AMD’s processor and graphics chips would be used in Project Scarlett, which is Microsoft’s new video game console releasing next year. So AMD stock is having a great run recently. The stock price is up about 100% over the past year.
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But does it still have room to grow? Maybe the not so much according to street sentiment. Out of 26 analysts covering the stock, not a single one has given the stock a Strong Buy rating. Currently there are 14 Buy Ratings, 11 Hold Ratings, and 1 Sell Rating. Of course that means there’s still a lot of confidence in this stock, but analysts don’t seem to be overly bullish right now.
Last month Jim Kelleher, CFA, Director of Research and Senior Analyst, Argus Investors’ Counsel, Inc reiterated his Buy recommendation for AMD. He mentions that the new ‘Zen 2’-based Ryzen CPUs and Radeon GPUs, both in 7 nm process node, are slated to be widely available this year before the holiday season. Although the first quarter of 2019 revenue “declined sharply year-over-year amid a clogged channel for CPUs, AMD guided sequentially higher for 2Q2019.” Explains Kelleher in a paper to investors. “We have boosted our EPS expectations for 2019 and 2020. Current prices do not fully discount AMD’s revenue growth and margin expansion potential, in our view. We are reiterating our BUY rating and 12-month target price of $35.”
But not everyone sees the stock favorably at this time. According to Reuters, although some bullish analysts are calling for a 12 month price target as high as $43, per share, the bearish analysts have set a low of just 7$ per share. Advanced Micro Devices Inc has strong price momentum right now, and is significantly higher than the semiconductors industry average. But with technology stocks the price momentum can turn ugly really quick. If we look at the fundamentals of the stock, the annual EPS trend is looking at about $1.01 per share by 2020. Since the current price of AMD stock is about $32 per share, this is not a cheap stock to buy today. Plus there seems to be a strong resistance at $33. Even though Bank of America raised its price target on AMD, yesterday to $40.00 per share, it’s hard to recommend this stock when it’s this relatively expensive, and does not have a good technical basis.
This author has 50 shares of AMD as of writing this article.