AMD Stock Is Pricey but May Be Completely Unstoppable
Advanced Micro Devices (NASDAQ:AMD) is getting no shortage of analyst upgrades. In the last 10 days, Wall Street analysts assigned a “buy” call and a price target of between $36 – $40. Analyst Blayne Curtis of Barclays is alone on the bearish $15 price target set two months ago. Now that the pros are overly bullish on AMD stock, should investors buy still buy it?
In the last two weeks of coverage, not a single analyst ranked AMD less than a buy.
Analyst Firm Ranking Position Price Target Date Mitch Steves RBC Capital Buy $40.00 today Mark Lipacis Jefferies Buy $36.00 3 days ago Kevin Cassidy Stifel Nicolaus Buy $38.00 4 days ago Vijay Rakesh Mizuho Securities Buy $36.00 6 days ago Jim Kelleher Argus Research Buy $40.00 10 days ago Shebly Seyrafi FBN Securities Buy $40.00 11 days ago
Source: Tipranks
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Enthusiasm for AMD’s prospects is growing for good reason. Intel Corporation (NASDAQ:INTC) delayed its 10 nm Canon Lake processor release – again. The chip won’t get a release until late 2019.
This hands over more than a one-year lead time for AMD to gain market share. Ryzen is already in the second generation, with the third generation Ryzen rumored to have up to 16 cores.
The massive core count gives AMD a strong feature differentiation over Intel. End-users largely abandoned desktops and laptops in favor of tablets and smartphones.
Yet CPU-intensive tasks like video editing and heavy photo post-processing benefit from having more cores. In the entertainment world, animation and special effects machines need powerful chips. This sector may now look to AMD to supply the computing power.
The refresh of Hero7 from GoPro, Inc. (NASDAQ:GPRO) may drive PC sales, albeit by a small degree. The latest action camera captures 4K videos. End-users will need a powerful computer to edit the video footage.
Vega and Polaris Lags
AMD’s sales of graphics cards called Polaris on the mainstream front and Vega on the high-end market may catch a break.
NVIDIA Corporation (NASDAQ:NVDA) over-hyped its RTX 2080 Ti. Hardware enthusiast sites are writing negative reviews on the GPU refresh. The sites justifiably give a low rank on the cards. Nvidia is charging more to the consumer but giving a less than proportionate increase in the card’s performance.
By taking a pass on the $1,200 upgrade, consumers may opt instead to get an AMD-powered GPU solution. How much market share AMD gets from weak RTX 2080 sales depends on two things.
First, if Nvidia does not release software drivers that improve the GPU’s performance, consumers may shun Nvidia and chose AMD instead. Second, if the current GTX 1080 cards do not get a price cut, AMD could cut prices of its product to drive sales.
Server Sales and AMD Stock
EPYC is a huge revenue and profit driver for AMD stock in the coming months. The server CPU has better scalability and costs less than Intel’s aging Xeon product line. Just as with desktop CPUs, Intel’s server CPU refresh is too slow.
Intel’s Copper Lake, under the 14 nm process, won’t be launched until 201, albeit a few quarters sooner than expected. The Ice Lake-SP platform, which is on the 10nm process node, will get a 2020 release.
Intel’s Cascade Lake-SP CPU release is scheduled for this year.
Takeaway on AMD Stock
That AMD took off like a rocket since bottoming at $10 in May will deter value investors from joining the rally. At a forward P/E of almost 50 times and a debt/equity of 1.58 times, AMD’s balance sheet does not leave much room for the company to miss sales estimates.
Since chances are good that the company will smash through expectations, buying AMD will pay off. Getting aboard the stock on a dip may come, although investors might need to wait a while.
Disclosure: The author does not own shares in any of the companies mentioned.
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