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It’ll Take Some Work, But AMD Stock Can Move Higher

Todd Shriber

News that there is some cooling in the trade tensions between the U.S. and China is one of the primary reasons why semiconductor stocks are perking up. Advanced Micro Devices, Inc. (NASDAQ:AMD) is one of those stocks, as highlighted by its gain of 2,5% last week.

The maker of graphics chips and other semiconductor products has a market capitalization of nearly $35 billion and has fans among Wall Street analysts.

AMD’s “early adoption of a distributed ‘chiplet’ architecture, combined with a shift to leading edge geometries, positions the company to take meaningful share from INTC in both the PC and server markets over the next few years (particularly if INTC continues to struggle with execution),” according to research firm Wedbush.

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If AMD can pilfer market share from its rival, Intel, in the personal computer (PC) and server markets over the next several years, AMD could cement its status as a best-of-breed semiconductor name. That is just one of several potential tailwinds that could buoy AMD stock price over the long-term.

Catalysts Abound for AMD Stock

Knocking heads with Intel in the PC and server markets will be tough for AMD, though AMD has the chops to compete with INTC. Fortunately, the bull thesis on AMD stock does not revolve entirely around those markets. As noted earlier, one of the company’s core competencies is graphics chips, a segment in which it directly competes with NVIDIA Corp. (NASDAQ:NVDA).

The booming video-game market and the expansion of cloud-based gaming present AMD and NVIDIA with vast opportunities in graphics and allow the companies to combat perceptions that the graphics market is dominated by cryptocurrency.

Citing cloud-based gaming, Morgan Stanley analyst Joseph Moore, a long-time AMD doubter, recently upgraded AMD stock.

“The bottom line is that due to a combination of the way that AMD implements virtualization, Nvidia’s desire to pursue higher-margin GeForce Now-based implementations, and AMD’s relationships with console developers, AMD can be in a very strong position to benefit if these cloud-based gaming initiatives start to take off,” said Moore.

The data-intensive nature of cloud gaming has created opportunities for AMD. That market is expected to post compound annual growth of more than 24% through 2025, reaching a size of $8 billion in that year. In 2018, the cloud gaming market had revenue of $1 billion.

So there are valid reasons why Craig Johnson, Piper Jaffray’s chief market technician, thinks AMD stock can rally 50% above its current levels.

The Bottom Line on AMD Stock: Bet on AMD’s Growth

When it comes to growth stocks, including large-cap names like Advanced Micro Devices stock, knowing that the company has a solid CEO is critical for investors. AMD has that with CEO Lisa Su. An alum of IBM (NYSE:IBM), Su has been at the helm of AMD for nearly five years. All AMD stock has done with Su leading the way is surge more than 900%, easily outpacing the widely followed PHLX Semiconductor Index (NASDAQ:SOXX) over that span.

That is all the more impressive when considering AMD is doing more with less relative to Intel. Said another way, AMD’s research and development budget is small compared to Intel’s.

Another potential catalyst for AMD stock is continued improvement in AMD’s cash flow. At the end of last year, AMD had $34 million of net operating cash flow, up from $12 million at the end of 2017. If AMD can continue bolstering that number, AMD stock would be provided with a critical backstop.

As of this writing, Todd Shriber does not own any of the aforementioned securities.

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