Shares of Advanced Micro Devices (AMD) have been on fire, skyrocketing more than 31% over the past month, crushing not only the S&P 500 Index, but also the Philadelphia Semiconductor Index (SOX), which has risen just 4% during that span.
The stock, which netted a new 52-week high last Thursday, closed Monday at $15.73. The shares have traded in a range of $9.04 to $15.97 over the past 52 weeks, meaning the stock has risen 74% from its 52-week low. Purely from a valuation perspective and the quick nature in which the stock has risen, there are plenty of reasons to suggest these shares have already run their full course or could become “growth fatigued.”
But you would be wrong.
The reason for AMD’s surge can be attributed to a couple of events, namely the recent unveiling of new products such as its next-generation CPU (central processing units) and GPU (graphics processing units) products at Computex 2018. During the event last week, the semiconductor giant — by demonstrating the world’s first 7nm GPU — took a giant leap and proclaimed its competitive position against Nvidia (NVDA) and Intel (INTC).
The prototype chip, which will be a part of the company’s Instinct line, is aimed at accelerating machine learning and the server market, where it competes directly with both Intel and Nvidia. And the fact that leaders at both the latter two companies have conceded to AMD’s sudden lead bodes well for the company. During a reporter roundtable in response to a question about Nvidia’s next GeForce GPUs, Nvidia’s CEO Jensen Huang said its next gaming chip won’t arrive for “a long time.”
Meanwhile, last week, Nomura Instinet analyst Romit Shah had a candid conversation with Intel CEO Brian Krzanich and said, "Mr. Krzanich was very matter-of-fact in saying that Intel would lose server share to AMD in the second half of the year.”
All told, everything is lining up perfectly for AMD, which recently received an endorsement from analysts at Stifel, who upgrades their 12-month price target from $14 to 17. From Monday’s close, this new target suggests potential premiums of 8%. That target seems modest to me, given the market share gains AMD stands to win from its larger competitors in the second half of the year.
So, while AMD stock no longer screams “bargain” at 35 times fiscal 2018 estimates of 45 cents per share, the valuation compares favorably to that Nvidia. Plus, AMD’s estimates implies year-over-year earnings growth of 164%, compared to 51% growth for Nvidia. From my vantage point, with momentum and fundamentals serving as tailwinds, now’s the time to want to own AMD stock, despite the recent surge in share price.