Going into 2016, few investors bet that Advanced Micro Devices, Inc. (NASDAQ:AMD) would be one of the stock market’s standout performers. But such is life in the wild world of investing — for the year-to-date, AMD stock has logged sizzling gains of more than 130%.
Yet lately, the momentum has cooled off somewhat. Consider that — since late August — AMD stock has lost about 12%.
So what’s next? We’ll get a better idea on Thursday, when AMD earnings will come out (they are scheduled for after the market closes). The expectations for the third quarter are for revenues to increase by 14% to $1.21 billion and earnings per share to hit break-even, compared to a 17 cent loss in the same period a year ago.
No doubt, there are certainly mixed views from analysts on AMD stock. Consider that the average target is $6.41 – which is about 40 cents below the current market value. For example, analysts from Barclays PLC recently put an “equal weight” on its rating and warned of the difficulties of the tough competitive environment.
But then again, when it comes to tech turnarounds, there is always doubt. In fact, AMD has had a long history of disappointment and terrible execution.
CEO a Bright Spot for AMD Stock
Yet it is important to keep in mind that AMD CEO Lisa Su has not wasted much time in making gutsy decisions since coming on board in late 2014. It’s also important to note that she has a rock-solid back ground in the semiconductor industry, with stints at companies like Freescale Semiconductor Ltd (NYSE:FSL) and International Business Machines Corp. (NYSE:IBM). She also has serious technical chops. Besides having a doctorate degree in electrical engineering from MIT, she also has penned more than 40 technical papers.
In light of all this, it should be no surprise that Su has doubled down on her investments in building cutting-edge technologies as well as targeting key growth markets. One example of this is virtual reality (VR).
Su was smart to leverage AMD’s expertise in graphics chips, which has resulted in snagging customers like HTC, Facebook Inc (NASDAQ:FB) and Sony Corp (ADR) (NYSE:SNE) for their VR gear. Oh, and it certainly helps that she has taken a low-cost approach. Based on survey from the Advanced Imaging Society, consumers generally believe that VR is too expensive, so AMD really has an opportunity to gain a nice chunk of the market share.
Although, VR is not the only growth opportunity. AMD also is gunning for the lucrative data center market, which is dominated by Intel Corporation (NASDAQ:INTC). But it seems reasonable that customers, like FB, Alphabet Inc (NASDAQ:GOOG, NASDAQ:GOOGL), Microsoft Corporation (NASDAQ:MSFT) and Amazon.com, Inc. (NASDAQ:AMZN), would like a lower-cost alternative, right?
Yes, this does seem like a good bet. In fact, there are already signs that the strategy is getting traction, as Alibaba Group Holding Ltd (NYSE:BABA) recently struck a deal with AMD to use its cloud-computing chip technologies. BABA noted that the systems allowed for intensive graphics, which would be critical for gaming and even data-intensive analytics. Oh, and the ecommerce giant hosts about 35% of the websites in China.
As for AMD stock, it does look like the buying may be overdone. But on a valuation basis, things still look reasonable, with the price-to-sales multiple at about 1.5X. This compares to more than 5X for operators for Broadcom Ltd (NASDAQ:AVGO) and Texas Instruments Incorporated (NASDAQ:TXN).
In other words, AMD stock could still be a value opportunity for a company that is positioned to benefit from some explosive growth markets.
Tom Taulli runs the InvestorPlace blog IPO Playbook and also OptionExercise.com, which provides interactive tools and financial services for those who have employee stock options (pre- and post-IPO). Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.
