Shares of semiconductor giant Advanced Micro Devices, Inc. (NASDAQ:AMD) skyrocketed as much as 8% on Tuesday on twice their average volume, reaching a session high of $12.24. The run in AMD stock was riven by a combination of factors, including winning chip placement in Apple Inc.’s (NASDAQ:AAPL) new line of iMac Pros.
But if you’re thinking about locking in those gains in AMD stock, think again.
Although there has been fear that chip rivals Intel Corporation (NASDAQ:INTC) and Nvidia Corporation (NASDAQ:NVDA) would chip away at Advanced Micro’s recovery, those fears now seem overstated. With gains coming in from its major revenue segments, AMD stock now has a direct line towards my year-end target of $15 per share, delivering 25% returns.
Beyond the upcoming launch its Naples chip in the second quarter, AMD now has two strong catalysts to keep the shares soaring.
Reasons to Love Advanced Micro Devices Now
Apple’s refreshed 21.5- and 27-inch iMacs — which Apple promises is the “most powerful Mac ever made” — are set to ship in December and will start at $4,999. (That’s not a typo.)
Apple also referred the new iMac’s graphics as the “most advanced graphics ever in a Mac.” That’s a nice plug for Advanced Micro, whose Radeon Vega graphics chips will power the PCs. This could potentially increase AMD’s desktop volumes by 60%.
Advanced Micro Devices is making moves suggesting it no longer want to play second fiddle to neither Intel or Nvidia. However, AMD has also become popular in a few emerging areas, such as cryptocurrencies like bitcoin — which has seen its value rise 200% this year and surged more than 8% on Tuesday, nearing $3,000.
“We are seeing solid demand for our Polaris-based offerings in the gaming and newly resurgent cryptocurrency mining markets based on the strong performance we are delivering,” an AMD spokesperson told CNBC on Tuesday. “The gaming market remains our priority.”
Miners for cryptocurrencies use graphic cards from companies like AMD to mine virtual coins that can be sold or saved. And it now seems that Advanced Micro, which is seeing increased demand for its graphic cards, has begun to enjoy the cryptocurrency-related gains that rival Nvidia has already enjoyed.
That’s to say nothing about the company’s computing and graphics segment, which now accounts for more than 60% of revenues, and grew almost 30% year-over-year last quarter.
While AMD did disappoint investors by issuing weak Q2 guidance, fundamentally, the company is operating on its stated objectives.
And with Advanced Micro enjoying higher average selling prices in both the Client segment and GPUs, AMD is poised to not only beat its Q2 guidance, but could raise its forecast for the third quarter and rest of the year.
After all, strength in Apple’s iMacs and cryptocurrencies have not yet been factored in its forecasts.
Bottom Line for AMD Stock
Looking ahead, not only is the company projected to swing to a 7-cent profit this year, but earnings are projected to accelerate next year by 328% to 30 cents per share.
And while investors were spooked by conservative Q2 guidance, that’s been a part of the management’s strategy: setting expectations to over-deliver.
All told, there is still plenty to like about AMD stock, even at fairly lofty valuations.
Aside from the recent launch its Naples chip, Advanced Micro will also launch its two other Zen-based chips, which should sustain the recent strength in average selling prices. As such, my crystal ball maintains that AMD will regain $15 per share, yielding 25% returns from current levels.
As of this writing, Richard Saintvilus did not hold a position in any of the aforementioned securities.
