The past six months have been pretty great for Advanced Micro Devices (NASDAQ:AMD) as investors warmed up to the semiconductor company and the stock shot 60% higher. The tech firm was beaten down earlier in the year as the bitcoin wave crashed and trade tension with China hurt sentiment.
The bulls have been flooding into AMD stock in recent months as the firm’s latest chip offerings steal market share from major competitors. But with the share price in the mid-20s, many are starting to wonder if it’s profit-taking time.
Where the Pop Came From
AMD stock has spent the majority of its existence playing second fiddle to its larger rivals like Intel (NASDAQ:INTC) and Nvidia (NASDAQ:NVDA), but this year the company’s new line of improved chips helped put the company on the map and have been taking the market by storm.
AMD’s most recent quarter showed that overall sales rose an impressive 53%, helped by the fact that computer and graphics sales were up 64%.
The graphics chip sales increase has been a major driver of AMD stock’s success because those types of chips are used in high-growth technology industries like artificial intelligence. Being at the top of the class in a segment with a long and steep growth curve has been a major boon for AMD’s share price.
Aside from the graphics chips, AMD has also rolled out a new line of Epyc chips for use in data centers. Again, this is a high-growth industry that offers a lot of upside for semiconductor companies like Advanced Micro Devices.
Momentum Likely to Continue
While AMD is having its moment in the sun, Intel is still tough competition, and the company’s size and experience makes it a formidable opponent. Plus, one of the reasons INTC has fallen behind is the fact that the firm had delays in its product planning — a window of opportunity that is unlikely to open again.
However, as Matthew Ramsay of Cowen pointed out, diversity is likely to become a priority for digital-processing firms. Using only one supplier with one type of chip presents a security risk, so the market is likely to make room for more than one chipmaker, and AMD looks likely to benefit from that shift for years to come.
What About Bitcoin?
AMD got a lot of attention last year after the company’s processors were heralded as a favorite among bitcoin miners. However, the company was caught up alongside the cryptocurrency’s wild swings as investors treated the firm as a bitcoin investment opportunity.
While it’s true that AMD does benefit from cryptocurrency mining because its chips are popular among miners, it’s important to keep in mind that the bitcoin-related part of the firm’s growth story is just a small piece of the pie.
That’s a good thing for investors because although cryptocurrencies are certainly volatile, they also represent a good future growth opportunity. However, since AMD doesn’t have all of its hopes pinned on the cryptocurrency industry, it is a much safer way to play blockchain than other purer plays.
AMD Stock Can Go Higher
It’s hard to say how much higher AMD stock can climb, but I wouldn’t take profits in the firm just yet. The company looks likely to deliver strong results in the second half of the year, and beyond that I agree with Cowen. The firm will likely benefit from customers’ need to diversify their chip suppliers.
AMD’s latest offerings have made the firm a worthy competitor against both Intel and Nvidia which has given the stock an injection of well-deserved optimism. The company looks likely to prosper in the months ahead, and its days of being a second-best semiconductor company appear to be over.
As of this writing, Laura Hoy did not hold a position in any of the aforementioned securities.
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