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Advanced Micro Devices Stock Is Overvalued, But Could Climb Higher

November’s been a good month for Advanced Micro Devices (NASDAQ:) stock. Shares are up 12% so far this month, with the stock hitting its 52-week high on Nov. 15. AMD has been a strong performer all year long, with the stock more than doubling since Jan. 1.

But is there more upside to the AMD stock price? Increasing market share and improved demand means a bright future ahead for the semiconductor giant. But these high expectations are baked into shares. For AMD to reach new highs, the company needs to crush estimates and charge ahead in terms of revenue growth.

At the current price, is the risk worth the opportunity? Let’s take a closer look at Advanced Micro Devices stock.

AMD Stock Gains as Company Wins Big

In CPUs and GPUs, AMD is crushing it. The company has made big gains in the past year. This has come at the expense of Intel (NASDAQ:) in CPUs, and Nvidia (NASDAQ:) in GPUs.

In the CPU space, AMD’s market share has soared. The company’s market share in CPUs is at its . Due to supply issues, Intel dropped the ball. This allowed AMD to step in and soak up market demand. AMD is gaining a bigger edge against Intel thanks to its new line of 7-nanometer processors. These more efficient chips could help grab more market share from Intel’s largely 14-nanometer chip lines.

Success in GPUs has been another positive factor for the AMD stock price. As InvestorPlace’s Brad Moon wrote Nov. 15, AMD’s video card shipments are now exceeding . But Nvidia is not going down without a fight. The two companies will continue to compete on both price and performance.

However, there is a potential spoiler — Intel. AMD’s CPU rival is making a go for a piece of the discrete graphics card market. Increased competition in GPUs is not a good factor for the AMD stock price. With end users wanting the most powerful processors at the lowest price, margins could take a hit.

But these dynamics have not stopped analysts from staying bullish. RBC’s Mitch Steves continues to give Advanced Micro Devices stock an . The analyst believes the company’s current edge will continue until at least the tail end of the 2020 fiscal year.

Taking a look at valuation, continued enthusiasm for AMD stock continues to be priced into shares. With this in mind, can investors buy today and win in 2020? Let’s take a closer look at valuation.

Advanced Micro Devices Stock Still Priced for Perfection

AMD stock continues to sell at rich multiples. The company’s forward price-to-earnings ratio is a staggering 92.1. AMD’s trailing twelve-month enterprise value/ ratio is 77. Compare this to Nvidia, which has a forward P/E of 47.9, and an EV/EBITDA ratio of 47. AMD has clearly pulled away in terms of valuation.

But that’s not all. Compare these high valuations of the GPU names to that of Intel. Intel’s forward P/E is just 13.3, and its trailing EV/EBITDA ratio is 8.4. Growth (or lack thereof) partially explains this valuation discrepancy. Intel is regarded as a slow-growing dinosaur, while AMD stock and Nvidia stock are seen as a high-flying growth stories.

Is this reality or just investor perception? Analysts are projecting revenues to climb from $6.7 billion in the fiscal year ending December 2019, to $8.5 billion in FY 2020. Earnings per share for AMD stock are anticipated to climb from 61 cents in 2019 to $1.09 next year.

This anticipated growth makes the current AMD stock price easier to stomach. But there’s a lot at play that could impact results in 2020. The much-awaited recession could finally arrive. The ongoing U.S.-China trade war soap opera could linger on into the next year.

AMD Could Surprise Investors in 2020

Since covering AMD stock in July, I have been largely wrong on the stock’s prospects. Shares briefly dipped under the $30 price level in early August and late September, but quickly rebounded on new developments. While I believe that AMD stock is overvalued, this may not matter. If the AMD growth story continues, shares could go well above the $40 price level.

But does this make Advanced Micro Devices stock a buy? Not so fast. While shares could rally in the coming year, don’t expect the high returns we saw in years past. Buying AMD today is going with the crowd. Betting with the crowd can make you money, until it doesn’t.

It’s tough to predict how the winds will blow. And that’s the case with the AMD stock price. The fundamentals for the company’s market share growth are strong. But the current share price reflects this catalyst. If you wish to speculate, consider a position. But otherwise, look for opportunities elsewhere.

As of this writing, Thomas Niel did not hold a position in any of the aforementioned securities.

The post appeared first on InvestorPlace.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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