My most recent analyses of Advanced Micro Devices, Inc. (NASDAQ:AMD) were less than enthusiastic about AMD stock.
What with the semiconductor company bringing out a lot of new products, the internet is chock full of discussion whether AMD is going to win or lose its fight against much bigger competition.
In early May, I poured cold water all over shareholders’ dreams of another another 300% move like it came close to accomplishing in 2016 — almost 10 times the average annual return of its semiconductor peers.
A Resilient Stock of Late
If nothing else, AMD stock has spunk — a trait embraced by those investors long the company’s shares.
“Goldman Sachs are biased and are playing politics with AMD. They admitted they have a dog in the fight with Nvidia and are betting that Nvidia will reach $300 a share,” wrote one Seeking Alpha subscriber June 14 responding to a sell rating from the investment bank. “Which means that Goldman Sachs are purposely trying to devalue AMD to prop up Nvidia.”
That’s a commitment to AMD stock that borders on the paranoid. Yes, it’s true that Wall Street firms have their own agendas when it comes to trading stocks, but it’s ludicrous to think Goldman Sachs Group Inc (NYSE:GS) analyst Toshiya Hari or the company itself has a sell rating on Advanced Micro Devices simply to make Nvidia Corporation (NASDAQ:NVDA) stock more attractive.
Not a Good Time to Buy AMD Stock
InvestorPlace.com’s Josh Enomoto has a much simpler reason why AMD isn’t the best place to be right now.
“Advanced Micro Devices has put out a few product victories this year, which is commendable and justifies at least some of this bullishness,” wrote Enomoto June 23. “But until AMD is able to show that it’s really able to put together a profit, its hot runs will continue to be extinguished when it runs out of headline steam.”
Given how far it’s come since the end of 2015, when AMD stock traded for less than $3, any disappointing news when it announces second-quarter earnings July 31 will result in a smack-down similar to the one in May when its share price declined 24% due to less-than-stellar Q1 2017 results.
That doesn’t mean it can’t move higher at some point in the next 12 months. In late May, I suggested that Advanced Micro Devices is in a reasonably good financial position despite the fact it can’t make money on a consistent basis.
If it can get gross margins into the mid-40s — where they were between 2009 and 2011 — while also growing revenue, a $20 stock price or higher would not be unreasonable.
However, where it trades now in terms of its valuation — in 2009 its price-to-sales ratio averaged 1.2, almost half its current multiple — indicates investors are pricing in a lot of good news in the future.
Bottom Line on AMD Stock
Every time it gets knocked down, AMD stock seems to get back up. Resilience is always an admirable quality, both in a boxer and in a stock.
Like my InvestorPlace colleague, I don’t see Advanced Micro Devices as a place to put your money until it proves it can deliver profitable growth.
“Over the past five years, Nvidia has made $4.6 billion in operating profits. By comparison, AMD has lost $2 billion. Under no circumstances should investors confuse the quality of each company’s financial statements,” I wrote May 24. “In my mind, there’s no question which is the better company.
At the same time I wrote the words above, I predicted that NVDA stock would get to $200 before AMD stock hits $16. The former is hovering around $152, while the latter is a few pennies about $14 as the last week of June begins.
I still feel that way.
As of this writing, Will Ashworth did not hold a position in any of the aforementioned securities.
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