Advanced Micro Devices Stock Forecast: Bullish Momentum for 2019

Advanced Micro Devices
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Advanced Micro Devices Stock Forecast for 2019

Advanced Micro Devices, Inc. (NASDAQ:AMD) is a good example of what a well-run penny stock tech company that addresses an unmet market can do.

For years, AMD traded for under $5.00 a share. Then, in 2016, its share price broke out, closing the year at around $12.00 per share. The semiconductor company traded in a tight range in 2017 and then broke out again in 2018.

Trading at around $20.75, AMD’s share price has advanced 98.5% since the start of the year. There’s good reason for investor optimism; AMD is on the verge of launching its new 7-nanometer processing chip, one that offers a higher transistor density than Intel Corporation (NASDAQ:INTC).

Yes, you can already find Apple Inc.’s (NASDAQ:AAPL) 7-nanometer chip in its “iPhone,” but Advanced Micro Devices has differentiated itself, and is targeting the PC and server markets. That’s why a bullish share price forecast of $35.00 in 2019, representing upside of 68%, is entirely within reach.

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AMD Stock Analysis of 2018

Before we delve into why Advanced Micro Devices’ share price could explode in 2019, let’s look at its performance so far, in 2018. Suffice it to say, it’s been a good year to hold AMD stock. The company entered the year trading at $10.42 and hit an intra-day high of $34.14 on September 13, representing a stellar gain of 227%.

If you take an isolated look at AMD’s chart, it looks like things took a drastic turn for the worse at the start of October. But it looks worse than it is. The entire market experienced a well-deserved sell-off. Some stocks have fared better than others. For the most part, though, the tech sector continues to face headwinds.

Trading at around $20.75, AMD’s share price is down 39% over its September highs. However, it’s still up 98.5% year-to-date and is the best-performing stock on the S&P 500. By comparison, the S&P 500 is up a princely 1.7% year-to-date and the Nasdaq is up a miserly 0.35% since the start of the year.

AMD Stock Chart

Chart courtesy of StockCharts.com

AMD’s share price was bullish from late April until early October, when the markets experienced a sell-off. The company’s share price traded well above the 50-day moving average and volume was strong.

With a market cap of around $20.5 billion, Advanced Micro Devices isn’t a small tech company but it certainly isn’t a giant like Microsoft Corporation (NASDAQ:MSFT), which has a market cap of $837.5 billion. So it’s not a total surprise to see that it didn’t weather the downturn as well as its much larger brethren.

That said, it tested support near $16.00 per share, which is also the company’s 200-day moving average. Since then, it has rebounded in a measured way. And the company’s outlook remains bullish.

Advanced Micro Devices Stock Financials

On October 24, the Santa Clara, California-based semiconductor company announced its financial results for the third quarter ended September 30.

Third-quarter revenue inched up 4.4% year-over-year to $1.65 billion; operating income was up $31.0 million at $150.0 million; while net income advanced 70% to $102.0 million or $0.09 per share. (Source: “AMD Reports Third Quarter 2018 Financial Results,” Advanced Micro Devices, Inc., October 24, 2018.)

“We delivered our fifth straight quarter of year-over-year revenue and net income growth driven largely by the accelerated adoption of our Ryzen, EPYC and datacenter graphics products,” said Dr. Lisa Su, President and CEO.

“Client and server processor sales increased significantly although graphics channel sales were lower in the quarter. Looking forward, we believe we are well positioned for further market share gains as we continue making significant progress towards our long-term financial targets.”

Recently, AMD’s corporate highlights include:

  • Microsoft announced a new “Azure H-Series” cloud instance for high-performance computing workloads powered by AMD “EPYC” processors.
  • Dropbox Inc (NASDAQ:DBX) announced plans to use the AMD “EPYC 7351P” one-socket processor platforms to support future growth and refresh its existing infrastructure.
  • Xilinx, Inc. (NASDAQ:XLNX) reported a new world record for inference throughput of 30,000 images per second, achieved by a system using, in part, two AMD “EPYC 7551” CPUs
  • Oracle Corporation (NYSE:ORCL) announced the launch of new AMD EPYC-powered services on “Oracle Cloud Infrastructure” for general purpose cloud computing workloads and Oracle applications.

Looking ahead to the fourth quarter, Advanced Micro Devices expects revenue of approximately $1.45 billion, give or take $50.0 million. This represents a year-over-year increase of eight percent. It expects non-GAAP gross margins to climb 41%, driven by sales of its “Ryzen,” EPYC, and datacenter GPU processor sales.

Advanced Micro Devices will be reporting its results for the fourth quarter sometime around January 23, 2019.

Why AMD Stock Could Reach $35 in 2019

There are a number of good reasons why investors should remain bullish on AMD in 2019 and could be rewarded with a $35.00 share price.

Strong Fundamentals

Some investors were disappointed by AMD’s third-quarter results. Third-quarter revenue was only up 4.4%—investors were clearly hoping for more. On the other hand, revenue for the first nine months of 2018 was up 30% year-over-year.

Third-quarter earnings came in at $0.13, which beat analyst estimates by a penny. Year-to-date net income was $299.0 million, or $0.28 per share, an improvement over the $14.0 million loss, or loss of $0.01 per share, reported in the first nine months of 2017. (Source: Ibid.)

Diversified Product Portfolio

AMD has a diversified product portfolio of award-winning microprocessors. Consumer Technology Association named the AMD “Ryzen Threadripper 2990WX” the CES 2019 Innovation Awards Honoree in the Computer Hardware and Components category. (Source: “2nd Generation AMD Ryzen Processors Win Prestigious Industry Awards for Technology Innovation and Consumer Value,” Advanced Micro Devices, Inc., November 8, 2018.)

Advanced Micro Devices also won two prestigious Trusted Reviews Awards 2018 in the categories of “CPU of the Year” for AMD Ryzen 7 2700X and “Value CPU of the Year” for AMD “Ryzen 5 2600.” (Source: “Trusted Reviews Awards 2018: All the year’s best tech revealed,” Trusted Reviews, October 22, 2018.)

In the recently completed third quarter, AMD said that revenue from its Computer and Graphics segment increased 12% year-over-year to $938.0 million. AMD said its year-over-year revenue growth was driven primarily by strong sales of Ryzen desktop and mobile products.

As a side note, the global high-performance computing market, of which AMD is a key player, is expected to grow to around $718.9 billion by 2026, with an anticipated compound annual growth rate (CAGR) of 25.2%. (Source: “High Performance Computing Market Global Size Worth USD 718.9 billion by 2026,” Digital Journal, December 11, 2018.)

7-nanometer Chips

AMD is on the cusp of launching its new 7-nanometer processing chips. Again, other big tech companies are using 7-nanometer chips in their phones, but AMD is differentiating itself by focusing on the PC and server markets.

The company expects to launch its 7-nanometer datacenter GPU in the current quarter and ship its 7-nanometer CPU in the second quarter. The company has already secured a number of datacenter wins, so expect the company’s new hardware to be a serious revenue drivers.

Case in point, in November, AMD announced that its EPYC server processors are being used by Amazon.com, Inc. (NASDAQ:AMZN) for its “Amazon Elastic Compute Cloud” (EC2). EC2 is part of “Amazon Web Services” (AWS), which is itself, the largest cloud provider, with 52% market share. (Source: “AMD Announces EPYC Processors Now Available on Amazon Web Services,” Advanced Micro Devices, Inc., November 6, 2018.)

AMD will have no trouble keeping up with demand for its 7-nanometer chipset since it has a supply agreement with Taiwan Semiconductor Mfg. Co. Ltd. (NYSE:TSM).

Analyst Take

Should you consider Advanced Micro Devices for the long term?

Our price target of $35.00 is certainly bullish, but Wall Street is equally optimistic about AMD over the next 12 months. Of the 29 analysts following AMD stock, the average price target is $25.00 and the high estimate is $40.00 per share, representing a 92% upside.

There is reason to be optimistic about AMD in 2019. The company has strong financials and in-demand, award-winning products—and it’s launching its 7-nanometer chipset. The smaller, more powerful chips should help make this one-time, overlooked penny stock a global leader in the tech world.