The past month has been a weird time for stocks. Though the US and China agreed to a temporary trade war truce, the tension between the two economic powerhouses has flustered investors. There are also concerns in Europe, as protests in France heat up and there is no clear timetable (or strategy) for Brexit. There is clearly uncertainty in the market, as shown by the VIX’s 50% increase over the past week. In all the craziness that is world economics and politics, individual companies have been caught in the crosshairs. Perhaps Advanced Micro Devices (AMD) is one of those companies.
If you ask a random stranger on the street to comment on AMD’s six-month stock chart, they’d most likely point out the company’s massive decline over the past 10 weeks. The chart shows a high peak quickly followed by a low trough, as AMD’s stock has declined by nearly 50% since September. Just from the look of the chart, you really can’t blame investors for keeping away from the stock. But if you look closer, the company is up about 15% over the past five weeks. The optimist sees this as a signal to buy, and we’ll give you three reasons why.
- Strong fundamentals – AMD’s latest quarterly report shows strong revenue growth of nearly 30% over the past nine months, compared to the same nine-month period in 2017. The company also posted a small profit in the first nine months of 2018, compared to a loss during the same period last year. Increased sales have also contributed to the company’s place in the semiconductor industry; AMD has gained market share against its competitors, which has contributed to its rising stock price over the past year.
- Product selection remains strong – At the end of the day, AMD is more than a bunch of charts or numbers on a computer screen. The company’s Ryzen brand of microprocessors are regarded as among the best products on the market. Trusted Reviews recently names Ryzen 7 2700X as the CPU of the year and Ryzen 5 2600 as the Value CPU of the year. Its processors are making up an increasing share of total company revenue; continued strong sales of Ryzen products will fuel the company going forward.
- The future is bright – AMD is moving towards developing 7-nanometer server chips next year. Making smaller and more powerful chips would be a major step forward for the company and would make them a leader in the tech world. AMD also recently launched a partnership with Amazon which will make their EPYC processors available on AWS. AWS is the US’ largest cloud-computing company and this partnership may help decrease the distance between AMD and Intel in the server segment.
Investors still should proceed with caution. While AMD’s P/S ratio is lower than that of the Nasdaq and less than half of Nvidia’s, its P/E ratio remains more than the double Nvidia’s and more than 5x Intel’s.
Analysis of 24 analysts by TipRanks shows a consensus Moderate Buy, with 12 analysts recommending Buy, 10 Hold and 2 Sell. The company still has an average price target of $26.14, representing a 29% increase from today’s levels. (See AMD price targets and analyst ratings on TipRanks)