Advanced Micro Devices, Inc. (NASDAQ:AMD) not long ago looked like another obsolete tech operator, headed for the dustbin of history. But lately, AMD has done a pretty good job of proving the critics wrong, including in the latest earnings report. Thanks to a nice combination of revenue growth and profits, AMD stock is up a sizzling 10% to set new multiyear highs.
The growth prospects for AMD, thanks to its all-in strategy to capture virtual reality market share, make the company awfully attractive at a glance.
The question right now is whether AMD stock is too hot to touch.
AMD Second-Quarter Earnings
For Q2, revenues grew by 9% to $1.02 billion and earnings came to $69 million, compared to a loss of $181 million in the same period a year ago. Stripping out one-time items, the company lost 5 cents per share. That’s a beat on both ends, with Wall Street looking for a loss of 9 cents per share on revenues of $942 million.
Something else to consider: The second quarter was the first time AMD posted revenue growth in about two years.
Anyone in AMD stock should be assured — this isn’t a blip. Q3 revenues are expected to shoot up by about 18%. AMD can thank some improvement in the PC market, which Intel Corporation (NASDAQ:INTC) noted in its own recent earnings report.
AMD also is expected to get a boost from the upcoming holiday season, as the company has struck key deals with game console operators. Perhaps the biggest impact will come from Microsoft Corporation (NASDAQ:MSFT), which plans to launch the Xbox One S during the fall. Next year should also see lots of action, too. MSFT plans to launch a new console (code name: Scorpio), and we likely will see a new platform from Nintendo Co., Ltd (ADR) (OTCMKTS:NTDOY).
All of these factors should create some tailwinds for AMD stock.
Bottom Line on AMD Stock
Yet for investors in AMD stock, the main attraction is the megatrend of virtual reality. AMD has been prescient in investing heavily in this category, and it also has the advantage of many years of experience with graphics.
More importantly, AMD is going all-in with a strategy to get a big chunk of the market share.The company recently set the pricing on its new VR chips at $199, compared to the typical $399 for similar offerings.
Growth in this market should come fairly soon, as many top tech operators — including Facebook Inc (NASDAQ:FB), Alphabet Inc (NASDAQ:GOOG, NASDAQ:GOOGL) and Samsung (OTCMKTS:SSNLF) — are aggressively making moves in the space.
This is all well and good for AMD stock, but at this point, a hands-off approach is probably best. AMD is as pricey as it has been in years, and a lot of today’s move might be courtesy of shorts bailing their positions (short stock represents close to 12% of the float currently). Heck, even traders who bought in today have gotten burned, as the stock gained as much as 16% before paring back some of those returns.
For now, let AMD stock simmer, and look to buy on the next market dip instead.
Tom Taulli runs the InvestorPlace blog IPO Playbook. He is also the author of High-Profit IPO Strategies, All About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.
