Do a search for the letters “AMD, ” and you get a ton of varied opinions about Advanced Micro Devices, Inc. (NASDAQ:AMD) and AMD stock.
How varied?
Here are two headlines from an Aug. 15 Google News search.
- “AMD to surge more than 40% because its new chip will take share from Intel: Analyst” — CNBC, Aug. 15
- “Barclays predicts shares of AMD, one of the market’s hottest stocks, will drop by more than 30%” — CNBC, Aug. 8
AMD stock closed Aug. 14 trading at $12.76, exactly $2.10 above the midpoint of its 52-week range and $4.13 above the midpoint of its five-year range. Twice so far in 2017, it has traded below $10.66.
Suffice to say, it’s an incredibly volatile stock.
Bank of America has a 12-month target of $18; Barclays is betting it’s more like $9.
Who’s Right about AMD Stock?
Personally, I couldn’t tell you. What I do know is that in one of my recent articles about AMD stock, I predicted that Nvidia Corporation (NASDAQ:NVDA) would hit $200 before Advanced Micro Devices hit $16. That was May 24.
Since then, AMD stock is up 18%. Meanwhile, NVDA stock is up 22.2% in the same period. Back in May, AMD and NVDA were 31.9% and 30.7% from their respective targets. Today, Advanced Micro Devices is 24.3% from its $16 price target while Nvidia is 19.4% from $200.
It’s a horse race.
It Doesn’t Matter, Buy This ETF Instead
The truth is it really shouldn’t matter whether you’re backing AMD or Nvidia or some other semiconductor company, only that the industry has been on a tear since 2014.
Over the past three years through Aug. 14, AMD stock’s averaged a 46.2% total return. Nvidia’s done even better, up 108.2% on an annual basis.
If we look ahead, it’s hard to know whether AMD, NVDA, or both will keep moving higher. Bank of America sees AMD moving higher while Barclays does not.
A logical person would consider this proposition (betting on either stock) a bad one because it’s possible that the good times are coming to an end. It’s also possible that the semiconductor stocks have a couple of good years left in them.
If you believe the latter is true, a sensible person would buy the SPDR S&P Semiconductor (ETF) (NYSEARCA:XSD) and take the guesswork out of the equation.
A modified equal-weighted portfolio tracking the S&P Semiconductor Select Industry Index, XSD holds 37 semiconductor stocks including AMD and NVDA with weightings of 3.65% and 3.36% respectively.
No holding has a weighting of more than 4.32% and less than 0.73%. Rebalanced quarterly, the weightings diverge as a result of individual stock performance.
Over the past decade, it has delivered an annual total return of 9.9%, 195 basis points better than the S&P 500, beating the index in six out of the last ten years and up by 73 basis points with a little more than four months left in the year.
Bottom Line on Advanced Micro Devices
If you feel strongly about AMD, by all means, go ahead and buy it.
However, if you’re smart, you’ll pay XSD’s 0.35% expense ratio, or $35 per $10,000 invested annually, and hedge your bet.
As of this writing, Will Ashworth did not hold a position in any of the aforementioned securities.
