Whether you’re looking at valuation, increased competition from Nvidia (NVDA) or “growth fatigue,” there are plenty of reasons to suggest shares of Advanced Micro Devices (AMD) have already run their full course. But it would be a mistake to think any of these reasons matter — a point made on Monday by Jefferies analyst Mark Lipacis.
AMD stock has been on tear, rising some 25% in three months, including a rise to $15.55 on Feb. 28 — its highest value in almost a decade. And if you’ve held AMD stock over the past year, you’re up a whopping 391%, including returns of 27% year to date. All told, the Sunnyvale, Calif.-based semiconductor giant has made investors rich. As for new investors? Don’t hold your breath waiting for better entry point.
On Monday not only did Jefferies' analyst Lipacis reiterate a Buy rating on AMD stock, he upped his price target to $16 from $13. The shares closed Monday at $14.40, suggesting additional premiums of 11%, which seems conservative to me given the strong growth argument Lipacis presented. AMD's new Ryzen chips 5 and 7 "will result in meaningful share gains" from Intel (INTC) in desktop PCs, Lipacis said.
This is because AMD’s next-generation Ryzen chips, released earlier this month, are said to outperform Intel in the desktop PC and gaming markets. Plus they also come at a much lower price. AMD’s highest-performing Ryzen chip — the Ryzen 7 1800X, which boasts eight core processors — costs $499. That’s half the price of Intel’s Core i7-6900K, which is priced at $1,000.
“We wanted to disrupt the PC market, we wanted to bring innovation, choice and performance to as many people as possible,” said AMD CEO Lisa Su ahead of the Rysen launch. Su insists that bringing this high-performing chip to market at an affordable price was the company’s main goal. It seems hurting Intel in the process was another.
And beyond the Ryzen chips, Lipacis believes AMD — thanks to its Zen chips released last year — can still gain market share in the realm of laptops and servers. "We model AMD to capture 1% of the performance desktop, notebook and server markets in 2017, and 4% in 2018," Lipacis wrote.
In short, with momentum, fundamentals and now execution stewed up at AMD headquarters, now’s the time want to own AMD stock, not part ways with it. Monday’s 7.3% pop on massive volume was the latest sign of the appeal AMD now has to investors who are on the outside looking in. And while AMD is not a screaming bargain at 49 times fiscal 2018 estimates, revenue and earnings growth trends (2018 EPS calls for 314%) suggests the valuation will catch up.