After returning around 150% in 2019, the shares of Advanced Micro Devices (NASDAQ 🙂 may be in tears again. The stock won 5.5% in the first two days of 2020, reached $ 48.53 on January 2 and surpassed an intraday record that hit it nearly two decades ago.
The shares have fallen since then and have fallen by 2.6% since 3 January to close yesterday's session at $ 47.83. However, this follows a rally last year in which AMD shares have greatly rewarded its investors and have become the largest percentage gain among the stocks listed in the index.
After seeing this remarkable rally, investors' biggest question is whether they have already missed the boat: is it now too late to buy AMD shares?
They are not cheap on a comparable basis. The price-earnings ratio of the share is 208 compared to Intel's (NASDAQ 🙂 13.94 and NVIDIA's (NASDAQ 🙂 65.35. And with a gain of 45 times ahead, AMD is now also the most valued chip stock, reaching more than twice the average multiple of the group of around 19 times.
AMD & # 39; s premium rating means that the company has a powerful momentum that other players in the semiconductor industry are missing. But before you buy the shares, you must make a calculated bet that they have more room to run and that you do not bet your capital on an overbought level.
To start its growth cycle, AMD released many products in Santa Clara, California, last year, focusing on its biggest rival Intel, which is struggling to roll out the latest and most advanced chips. In a series of new product releases, the company demonstrated its ability to gain a competitive edge over Intel and could win the largest customers in the cloud computing market – which had rather few options than confidence on the expensive products of Intel.
More ammunition in store
And it seems that the company has more ammunition in store for 2020. At a trade show on Monday, AMD announced several updates for its line of PC and graphics processors, including the most advanced Ryzen chips designed for laptops. The company also confirmed that it is designing custom processors for the new PlayStation and Xbox game consoles to be released this fall.
The new chips are designed to expand AMD's market share by introducing the latest chips well in advance. For example, most gaming updates will come onto the market this year, giving AMD an edge over competitors. AMD & # 39; s smart switch to partner with Taiwan Semiconductor Manufacturing (NYSE 🙂 means that it has access to the 7-nanometer server chips, much for Intel. Intel announced on Monday that it will send laptop chips for its new 10 nanometer process this year.
This progress has given AMD a very favorable response from some of the best analysts in the industry predicting further gains in stocks. In a recent note, Nomura Instinet raised its share price target from $ 40 to $ 58. Analyst David Wong expects AMD to "continue to strengthen its competitive position in 2020", helped by higher prices and more market share.
Previously, Rosenblatt Securities also raised its price target to the highest on the street – $ 65 – and called AMD the best choice for semiconductors for 2020. This year "the early momentum in CPU earnings will continue," wrote Hans Mosesmann when he "Limited competition threats that slow the impulse."
The average price target is $ 39. Currently, 15 analysts recommend buying the shares, compared to the 23 companies that Bloomberg has followed and that have a similar rating. Four companies recommend selling the name, the least number in more than a year.
AMD & # 39; s fourth quarterly report, scheduled for later this month, will be an important test for its stock. According to analysts' consensus forecasts, revenue should increase by 28% in 2020, which would be AMD & # 39; s biggest growth year since 2004.
Bottom Line
Acting at the highest level in two decades, AMD is susceptible to some correction before it goes higher. If you already own the stock, making a profit at this stage is not a bad idea. But being careful does not mean that AMD is a bad choice for the long term. The chip maker is slowly expanding its market share and is well positioned to take advantage of Intel's decline. Any weakness in the share value of AMD must be considered as a chance to sell.
