Stocks of Advanced Micro Devices (NASDAQ 🙂 have lost some of their shine this year. After vastly outperforming its competitors in 2020, the chip manufacturer is lagging behind.
The stock is down 13% this year, while the benchmark achieved a gain of 6% over the same period. This reversal is taken by some investors as a sign that the rally over the past five years that pushed AMD shares more than 3,000% higher has progressed.
AMD Weekly Chart.
On the business side, there's nothing wrong with California-based AMD. In January, the company made another positive forecast, showing that it continues to gain market share by taking advantage of production slowdowns at its main rival, Intel (NASDAQ :).
For the current quarter, sales will be approximately $ 3.2 billion, plus or minus $ 100 million. That compares to an analyst average estimate of $ 2.73 billion. For 2021, the company expected sales growth of 37%, well above Wall Street expectations.
In an interview with Bloomberg, Lisa Su, AMD's chief executive officer, saw no headwinds that could disrupt the chip manufacturer's growth trajectory:
“Overall demand was high in 2020 and exceeded our plans. All our companies are running at full speed. "
After falling decades behind Intel, the world's largest chip maker, AMD has been catching up in recent years, aided by advancements at Taiwan Semiconductor Manufacturing (NYSE :), which makes chips on their behalf. That outsourcing strategy helped AMD at a time when Intel faced a series of manufacturing setbacks and repeatedly fell behind in introducing new chips.
Too Far, Too Fast
In addition to competing with Intel in the field of processors. for personal computers and servers, AMD also supplies graphics chips, which some of the world's largest companies use in their game consoles, including Microsoft's (NASDAQ 🙂 Xbox and Sony Corp's (NYSE 🙂 PlayStation . The gambling market is booming during the pandemic, with children spending most of the time at home.
Despite these favorable market conditions, some analysts believe that AMD & # 39; s high-flying stocks need a breather, as most of the good news is already reflected in the price.
Wells Fargo Securities analyst Aaron Rakers in a recent note lowered AMD with a 12-month price target of $ 64, saying the stock has gone too far, too fast. In a note to customers entitled "Time for a Breather," Rakers added that AMD ratings look lofty and may not support a huge benefit. AMD shares are trading at about 50 times earnings this year, 40 times earnings next year.
Another trend that investors watch when trading AMD stock is how its rival Intel is performing. Compared to AMD, Intel has gained more than 25% this year as the company sees strong demand for laptops in the first half of the year, and new CEO Pat Gelsinger pledges to regain the company's lead in chip manufacturing .
Bottom Line
Despite the recent weakness in AMD stocks, we still believe the chip maker will recover in the coming weeks and overtake its competitors. According to analysts' consensus price target, AMD stock could hit $ 103 per share in the next 12 months, a 27% upside from current price as they expect the company to continue to gain market share as Intel struggles to get new products to market. market.
