AMD Stock: Will the Rally in Advanced Micro Devices, Inc. Continue?

AMD StockThis Could Be Massive for AMD Stock

When a stock just posted triple-digit gains, you’d expect some pullback, but that’s not the case for Advanced Micro Devices, Inc. (NASDAQ:AMD) stock. After climbing nearly 200% since February, AMD stock is yet to have a major correction. There was a hiccup toward the end of last month, but AMD shares were quick to bounce back.

Now, the company is reporting earnings again. Will the uptrend in AMD stock continue?

Well, if you have been following the company lately, you’d know that it’s not really this quarter’s revenue and earnings that investors are focusing on. Still, it would be helpful to know what Wall Street is expecting.

On average, analysts expect AMD’s revenue to increase by one percent year-over-year to $951.29 million in the second quarter of 2016. The company is still expected to make a net loss, but the consensus estimate is a loss of $0.08 per share, significantly narrower than the company’s $0.17-per-share loss in the year-ago period. (Source: “AMD Analyst Opinion,” Yahoo! Finance, last accessed July 20, 2016.)

Note that last time the company reported earnings, AMD stock shot through the roof. However, it wasn’t just the financials that impressed investors then; AMD also delivered better-than-expected guidance and, more importantly, announced a joint venture with Tianjin Haiguang Advanced Technology Investment Co., Ltd. (THATIC). (Source: “AMD Reports 2016 First Quarter Results,” Advanced Micro Devices, Inc., April 21, 2016.)

Under that deal, AMD will license its processor and system-on-a-chip technology to the joint venture, helping to create server chips tailored to the Chinese market. In return, AMD will receive $239 million in licensing fees and royalties from products sold by the joint venture. Investors liked this news, as it will not only bring more business to AMD, but it will also help the company compete with Intel Corporation (NASDAQ:INTC) in China.

This time, there is still something for AMD stock investors to look forward to.

AMD Stock’s “Secret Weapon”?

The company unveiled its “Polaris” architecture-based “Radeon RX” series graphics cards at the end of May. They are capable of powering virtual reality-ready (VR-ready) computers and cost a fraction of what AMD’s competitors’ products typically cost. (Source: “AMD Showcases New High-Performance Solutions at Computex Taipei 2016,” Advanced Micro Devices, Inc., May 31, 2016.)

Chasing after bargains doesn’t always pay off. Rather often, you get what you paid for, but reviews of AMD’s Radeon RX series chips suggest that they’re different. According to recent reviews, these chips are indeed VR-ready. And the best part is that because of its pricing, AMD might actually be able to expand its total addressable market for VR products. (Source: “AMD’s Radeon RX 480 Is the New King of Budget Video Cards,” Engadget, June 29, 2016.)

Since the RX series graphics cards have just been released, their sales won’t really be reflected in the company’s second-quarter earnings report. However, management could give some updates on the reception of these products, potentially becoming the catalyst for AMD stock this time.

In addition, investors will look forward to company CEO Lisa Su’s comment on AMD’s progress toward being profitable. At a recent computer expo in Taipei, she said that she expects the company to return to operating profitability in the second half of 2016. (Source: “U.S. Chipmaker AMD Expects Return to Operating Profit in Second Half – CEO,” Reuters, June 1, 2016.)

The Bottom Line on AMD Stock

The company is scheduled to release its second-quarter earnings report today, Thursday, July 21, after the closing bell. If the company’s guidance and product updates manage to cheer up investors again, AMD stock’s enormous rally could continue.