Advanced Micro Devices (NASDAQ:AMD) can seem to do no wrong. After a blow-out earnings report in late April, AMD stock looked like it couldn’t possibly go higher. But after bears tried to seize the day, the stock has continued to show its strength.
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With the stock looking to reclaim and surpass its record high, the only question seems to be how high can AMD stock go?
If you believe the analysts, the answer is significantly higher. Particularly if AMD comes anywhere close to hitting the 25% revenue growth and 61% earnings growth targets that Bret Kenwell reported some analysts are forecasting.
I’m probably not the right person to ask as I haven’t seen eye to eye with AMD stock over the past year, but what I see right now convinces me that AMD will continue to go higher until it won’t. And there are reasons for that which are worth exploring.
The Pandemic and AMD Stock
Semiconductor stocks are notoriously cyclical. In 2019, the prolonged trade dispute between the United States and China took away the momentum that chip makers were supposed to get from the 5G revolution.
Then, just as it looked like semiconductor stocks were getting their mojo back, the novel coronavirus hit putting an end to the bull market. But even though chip stocks were part of the sell-off, most analysts felt that semiconductors would weather the pandemic just fine.
The primary reason for that is their chips would be needed in the critical areas that were brought on when millions of Americans were forced indoors.
Desktop computers and laptops were needed or upgraded to assist in working from home. Many Americans discovered or rekindled their love of gaming. And remote learning also required more Americans to stay connected.
All of these areas were beneficial to semiconductor stocks, and Advanced Micro Devices was a clear winner in every area.
AMD Chips Are the Future of Gaming
The video game industry got an unexpected catalyst from the Covid-19 pandemic. The industry was in a holding pattern. Microsoft (NASDAQ:MSFT) and Sony (NYSE:SNE) are due to release updated versions of their Xbox and PlayStation consoles respectively later this year.
AMD has the contract to provide the GPU chips that will power these gaming consoles. The reason comes down to the fact that AMD chips are seen as being more nimble as Microsoft and Sony look to these consoles take on a more prominent role as an entertainment hub. AMD was also willing to create an entire business unit to service this growing need.
But there’s another emerging trend in gaming that takes me back to my miss on data centers. Alphabet (NASDAQ:GOOGL,NASDAQ:GOOG) recently introduced a streaming gaming service known as Stadia. The benefit of Stadia is that rather than being tethered to specific hardware, the games are streamed from Google’s data centers.
Right now the technology is still in its infancy. And that can make it less of an option for the serious gamer. But the technology is due to improve with faster internet speeds and more powerful data centers. And guess who has the contract for supplying chips for Alphabet’s data centers? You got it, AMD.
I Got It Wrong on AMD Stock
Like my InvestorPlace colleague, Thomas Niel, I have been on the wrong end of the Advanced Micro Devices debate. Last year, as semiconductor stocks were treading water, I missed the rally. Then at the start of the year, I backed off my bearish thesis, but still cautioned prudence.
Even after its last earnings report, I still wasn’t all in on AMD stock. And I suppose I could take a victory lap because the stock did decline after earnings. But that doesn’t look like a case of my being prescient. It’s more like a broken clock being right twice a day.
In short, I dismissed the market share gains the company was making. I also did not assign enough wait to the company’s winning of data center contracts. I’m not doing that now. AMD stock looks like a solid buy despite being at a record high.
Chris Markoch is a freelance financial copywriter who has been covering the market for over five years. He has been writing for InvestorPlace since 2019. As of this writing, Chris Markoch did not hold a position in any of the aforementioned securities.
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