The shares of Advanced Micro Devices (NASDAQ 🙂 are on fire. After rising sharply in a broad market recovery since March, they have gained another 65% in the past 30 days. This revival makes investors wonder: how much higher can they go?
Before discussing the magnitude of the upward trajectory of this technical darling, it is important to understand what drives the movement. The answer can be found in the recent California chip maker, which showed strong sustained demand for its products, despite the devastating impact of the COVID-19 pandemic on the global economy.
AMD reported a net result of $ 157 million in the second quarter, or $ 0.13 per share, compared to $ 35 million, or $ 0.03, in the same period last year. Revenue increased 26% to $ 1.93 billion. Earnings, excluding certain items, were $ 0.18 – more than analyst estimates of $ 0.16 on revenue of $ 1.86 billion.
But investors went all-in on AMD stock after seeing the company's very bullish forecast for the rest of the year, showing that it is quickly becoming a powerful player in the semiconductor industry, where competition is murderous.
Aided by increased demand for server chips, the company expects third-quarter sales to reach approximately $ 2.55 billion, surpassing the analyst average forecast of $ 2.3 billion. AMD has also raised expectations for the full year and expects revenues to increase by around 32%, thanks to the power of PC, gaming and data center products.
Intel loss is the gain of AMD
. AMD is expected to be in a good position to take advantage of the weakness of one of its main competitors, Intel (NASDAQ :).
After decades of lagging Intel, the world's largest chip maker, AMD has been catching up in recent years, thanks in part to advances in Taiwan Semiconductor Manufacturing (NYSE :), which makes chips on its behalf.
That outsourcing strategy helped AMD at a time when Intel faced a series of manufacturing setbacks and repeatedly fell behind with the introduction of new chips. In a big surprise announcement last month, Intel said it was considering scrapping a decades-old strategy of making chips in-house.
AMD Chief Executive Officer Lisa Su told analysts after the earnings report was published last month that her company is on the way to gaining market share as new products become more widely used.
Microsoft (NASDAQ 🙂 Xbox Series X and Sony (T 🙂 PlayStation 5 – each will include a powerful AMD processor. Demand for such products is likely to increase as the holiday season approaches, and the COVID-19 pandemic is forcing people to stay at home.
$ 100 Price Target
This turnaround and Intel flops make analysts quite optimistic about AMD's prospects. Vivek Arya of Bank of America told customers in a recent message that AMD could gain greater market share in the PC and server space, as it does next-generation processing technology.
Arya raised the target price of AMD to $ 100 per share, representing an increase of 17% from its current stock level. The AMD stock closed at $ 86.71 yesterday, after rising about 80% this year.
AMD & # 39; s price target of $ 100 per share is based on a price-earnings ratio of 41 times 2023. That may seem lofty, but the analyst finds it justified given the expected pace of earnings growth over the next three years. and "the company's ability to participate in major markets," said Arya's note published by CNBC.com.
Jefferies analyst Mark Lipacis also sees further upside for AMD stock, spurred by Intel's recent announcement that the latest chips are six to 12 months behind schedule.
Lipacis wrote in a recent note when he raised the share price target from $ 86 to $ 95:
"Given our updated view that INTC issues are related to learning curves, making it difficult to close the gap with TSMC, we expect AMD's earnings to grow faster."
Its bull case for the stock expects the company to capture 30% of Intel's market share in the next two to three years, making it 50% of the total market in four to five years.
Bottom Line
Everything seems to be going well for AMD, especially because its main rival is faltering. But investors, who are thinking about getting into this trade now, should remember that the shares are priced perfectly and the company cannot afford to have anything go wrong.
