This Analyst Loves Advanced Micro Devices (AMD) Stock. Should You?


Things are looking good for Advanced Micro Devices’ (AMD) stock.

Last month, Alphabet’s Google (GOOG) confirmed that AMD’s GPUs would power its new Stadia gaming platform. Google says the custom-made AMD GPUs will provide more than double the teraflop capabilities as than the PlayStation 4 Pro, and nearly double that of the Xbox One X. Many investors are hoping that this is just the beginning of the Google-AMD relationship, with the potential huge for AMD if it is able to continue to entrench itself in Google technology.

Nomura analyst David Wong believes AMD is in “a solid position in both the x86 microprocessor and the standalone graphics processor (GPU) markets,” compared to competitors Intel and NVIDIA, “which are each dominant in only one of the microprocessor/GPU markets.”

Wong has initiated coverage on AMD stock, with a Buy rating and $33 price target, which implies nearly 14% upside from current levels. (To watch Wong’s track record, click here)

Wong believes there is plenty of room for AMD to grow market share. He says, “in recent years, with the launch of new microprocessor and GPU families, AMD has managed to lift from its market share lows in all categories of x86 microprocessors and GPUs.” The analyst estimated a greater-than 10% market share in datacenter x86 processors, between 15-20% share in desktop and notebook, and greater-than 30% in both desktop and mobile GPUs. Continued market share momentum “will help drive AMD’s sales growth through 2019, 2020, and beyond.”

Besides better product sales, Wong is bullish on AMD for its “return to sustainable profitability.” The analyst believes this will “help drive AMD’s stock value,” as he forecasts GAAP EPS to increase this year and “rise meaningfully in subsequent years from roughly breakeven in the March 2019 quarter.” As a litmus test, the analyst believes “that at some point in the next few years, AMD will be able to demonstrate EPS power of $2.00 or more.”

Though Wong sees the company’s stock rising and sustainable profitability returning, the analyst is still mostly concerned with the point of profit. He says, “AMD has a history of poor profitability,” with clear risk to its stock price if it fails to generate what is expected. And while Wong believes AMD’s position in the market is unique, he does cite Intel and NVIDIA’s largeness as potential roadblock, as these two have resourced AMD does not.

All in all, before rebounding this year, AMD shares plummeted nearly 50% at the end of 2018. While some analysts, like Wong, seem to be excited about AMD’s prospects, some others remain cautious. TipRanks analysis of 21 analyst ratings on AMD shows a consensus Moderate Buy, with 11 recommending Buy, 9 recommending Hold and one saying Sell. Notably, the average price target among these analysts stand at $25.94, suggesting the stock is overvalued with a potential downside of 11%. (See AMD’s price targets and analyst ratings on TipRanks)

 

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