Why Advanced Micro Devices Stock Just Popped
What happened
Shares of semiconductor star Advanced Micro Devices (NASDAQ: AMD) jumped on Tuesday, and are up 2% as of 11:30 a.m. ET.
You can thank investment banker Bernstein for that.
So what
This morning, Bernstein upgraded shares of AMD to outperform -- the analyst's first upgrade of the semiconductor stock to a buy level in a decade, as StreetInsider.com just pointed out.
In a very personal note, Bernstein admitted that "long ago as baby sell-side researchers [Bernstein was] among the most bullish on the street on AMD," but had its hopes "dashed by GloFo execution issues & the start of the PC market collapse." Once burned, twice shy, Bernstein then "watched ... from the sidelines" as "the stock subsequently climb[ed] from sub-$2 to over $100."
This was a huge missed opportunity and "the biggest missed call of our Wall Street tenure," laments Bernstein, but "this is not the AMD of a decade ago." Instead, AMD has in recent years demonstrated "continued stellar execution [and] increasingly bankable earnings power."
Image source: Getty Images.
Now what
Today, says Bernstein, AMD stock "trades under 30-times near-term EPS and 20-times a likely $5-plus in earnings power, approaching the cheapest in 5 years."
And granted, these valuations Bernstein is citing are forward price-to-earnings ratios, which may or may not prove out. But even limiting oneself to valuing the stock on historical, proven profitability, AMD shares cost only 44 times trailing earnings today. Relative to analyst forecasts for 30% long-term annual earnings growth rates, that's not a cheap price, exactly, but it's not insanely expensive in this market, and it does look attractive relative to, say, Nvidia shares at more than 60 times trailing earnings on a slower (21%) projected earnings growth.
That makes AMD stock at least a relative bargain. After 10 years of waiting, I can hardly blame Bernstein for jumping at the opportunity to recommend AMD stock today.
10 stocks we like better than Advanced Micro Devices
When our award-winning analyst team has a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*
They just revealed what they believe are the ten best stocks for investors to buy right now... and Advanced Micro Devices wasn't one of them! That's right -- they think these 10 stocks are even better buys.
*Stock Advisor returns as of January 20, 2022
Rich Smith has no position in any of the stocks mentioned. The Motley Fool owns and recommends Advanced Micro Devices and Nvidia. The Motley Fool has a disclosure policy.
