With its stock up nearly 80% this year, is Advanced Micro Devices (AMD) still a buy?
On the one hand, the company continues to launch new products and has done a great job cementing itself as a force in the industry. But on the other hand, shares are not cheap, trading at a 137 trailing P/E — its highest since June. Indeed, UBS analyst Timothy Arcuri feels that AMD stock is fairly valued as he reiterates a Neutral on the stock with a $31 price target. (To watch Arcuri’s price target, click here)
As always, we like to give credit where credit is due. According to TipRanks, which measures analysts’ and bloggers’ success rate based on how their calls perform, Arcuri has a yearly average return of 25% and a 68% success rate on his calls. Notably, Arcuri is ranked #52 out of 5,246 analysts.
AMD’s 2019 has been quite strong due to Rome expectations and other revelations from the company. For example, the US government recently tapped AMD (along with Cray) to develop the world’s most powerful supercomputer. This is not expected to bring significant revenue to AMD, but it signals to investors and rivals that AMD is a force to be reckoned with. But the most important driver of growth thus far has been excitement for Rome and the 7nm chips, which is expected to help continue to narrow the gap between AMD and Intel.
AMD expects to launch its Rome server CPUs this quarter. Like the new Ryzen chips, it will be built on a 7nm process. While Rome and the 7nm chips are expected to be a major boost to AMD, Arcuri is worried that “Sept guidance could be slightly pressured by weak hyperscale demand, but the more important factor will be AMD’s commitment to double-digit [market] share by mid-2020…” and it is “unlikely that AMD would waver on this point.” However, Arcuri is optimistic as he expects Rome to help margins, “which still look conservative.”
“Our field work continues to support that AMD remains on track on its side and while one could conclude from recent MU comments that hyperscale demand is coming back, we still don’t see it on the server side and this is something that remains out of AMD’s control,” Arcuri added.
All in all, Wall Street sizes up AMD as a ‘Moderate Buy’ stock, as the bulls edge out the cautious on the chip giant. In the last 3 months, AMD has received 13 bullish ratings versus 8 analysts hedging their bets. With a slight return potential of 3%, the stock’s consensus target price stands at $33.74, revealing apprehension baked into analysts’ expectations. (See AMD’s price targets and analyst ratings on TipRanks)