AMD Stock Jumps by Double-Digits
Shareholders, rejoice! Advanced Micro Devices, Inc. (NASDAQ:AMD) is once again on the sunny side of earnings season, beating expectations on both the top and bottom lines. No wonder AMD stock jumped 10% after earnings were released.
More than 21 million of its shares traded hands late Tuesday evening. I shouldn’t be surprised, considering how well this stock has performed over the last two years, but I confess that I am.
Analysts (myself included) expected AMD to barely break even. Not an inch more. Yet AMD stunned us all again, by delivering $0.02 per share on an adjusted basis.
“Our second quarter results demonstrate strong growth driven by leadership products and focused execution,” said Dr. Lisa Su, AMD president and CEO.
“We are very pleased with our improved financial performance, including double digit revenue growth and year-over-year gross margin expansion on the strength of our new products.” (Source: “AMD Reports Second Quarter 2017 Financial Results,” Advanced Micro Devices, Inc., July 25, 2017.)
AMD’s resurgence in recent years is fast becoming legend. The company broke free of its image as the perennial runner-up to Intel Corporation (NASDAQ:INTC) and took on a completely new persona.
It is now a cutting-edge chipmaker that takes chances on emerging technologies like driverless cars and Ethereum mining. AMD—not Intel—is the chipmaker that approached Chinese rivals with a licensing offer.
None of these bets were considered obvious at the time. In fact, some analysts even thought AMD was grasping at straws. Boy, were they wrong.
As an analyst and writer, I adore this company. But that adulation is nothing compared to my feelings for it as an investor.
How often do you see a stock with two consecutive years of triple-digit growth? I’ll save you the task of counting. The answer is “not very often at all.”
Is AMD Stock a Good Investment?
Chart courtesy of StockCharts.com
Our coverage began in December 2015, so it’s not like we are hopping on the bandwagon. AMD was trading below $2.00 a share when we predicted it would reach $6.00.
And it did reach that level. Then we predicted that it would reach $10.00, and it reached that level too. Our next target after that was $15.00, which is within striking distance now.
AMD stock found a handle at $14.00 at the time of this writing.
But I’m ready to make a new AMD price prediction for 2018, namely that AMD stock could reach $35.00 as soon as next year.
The investment thesis behind this prediction is quite simple.
If AMD spent the last two years shrinking its losses, next it will see a corresponding rise in profits. That is reason enough for a stock to skyrocket, but I also believe that AMD’s underlying trends are still at the outset of their upward movements.
Should You Buy AMD Stock?
Naturally, this is a hard question to answer without meeting you in person. It matters whether you can shoulder risk, brave sharp drops in your net worth, and maintain a belief in an investment through thick and thin.
That said, ask yourself how you feel about the following technology trends. If you feel positively about them, then AMD stock might be right for you. If not, well, then you might enjoy something duller…like Johnson & Johnson (NYSE:JNJ) stock.
- Video Games. Before I get to the more esoteric technologies, I must pay homage to the single greatest factor in AMD’s rise: hardcore gamers. The rise of gaming as a mainstream form of entertainment, one which rivals movies and TV shows, is causing a lot of problems in society. Some economists believe that young men are staying unemployed just to play video games. But the fact remains that video games have significantly boosted demand for AMD’s graphics cards.
- Cryptocurrency Mining. (Now for the esoteric.) Digital currencies like Ethereum and Bitcoin form their networks by encouraging people to “mine” their tokens from the source code. These “miners” effectively power the network, and are rewarded with tokens in return. It can be quite profitable. But, in order to run more efficiently, miners have started using GPUs rather than CPUs. And you know who sells the microchips needed for GPUs? You guessed it: AMD.
- Datacenters. With every day that passes, the quantity of data on the Internet increases. Where is this data stored? In datacenters, obviously, but are there enough of them? Apparently not. Google (also known as Alphabet Inc (NASDAQ:GOOG)), Amazon.com, Inc. (NASDAQ:AMZN), Microsoft Corporation (NASDAQ:MSFT), and others are racing to build more datacenters and, in the process, make them more efficient. That’s where AMD comes into the picture. Its new line of datacenter chips allow for faster and more creative processing.
You may notice that each one of these trends comes back to graphics cards. That is not a coincidence. Like NVIDIA Corporation (NASDAQ:NVDA), AMD happened to be in the right business at the right time.
It turns out that graphics cards are better suited to advanced software, although no one but a few specialists would have guessed that 10 years ago. There are near limitless applications in the 21st century economy.
As a result, I expect the AMD stock price to continue its upward trek past $20.00, $25.00, and even $30.00. My AMD price prediction estimates a $35.00 handle sometime in 2018.