Advanced Micro Devices, Inc. (AMD): The Turnaround Is Legit!

AMD - Advanced Micro Devices, Inc. (AMD): The Turnaround Is Legit!

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Turnarounds usually aren’t neat, orderly affairs, but Advanced Micro Devices, Inc. (NASDAQ:AMD) just keeps building momentum as the semidconductor firm continues to remake itself. Fourth-quarter earnings out Tuesday evening launched AMD stock by another 5% in after-hours trading, continuing a roughly yearlong run that hasn’t seen much in the way of pullbacks.

AMD stock, advanced micro devices

For Q4, AMD posted an adjusted loss of 1 cent a share on revenues of $1.11 billion, which were up 15.4% year-over-year. While earnings were in line with Wall Street expectations, sales beat by about $40 million.

Also driving AMD stock higher was upbeat earnings guidance for the current quarter. Advanced Micro Devices forecasts revenues to range from $955 million to $1.02 billion. Using the midpoint, AMD would be looking at an 18% increase to $989 million — well above analyst expectations for $964 million.

Some additional highlights from AMD’s fourth quarter:

  • The Computing and Graphics unit saw its revenues jump by 28% to $600 million.
  • The cash balance increased by $6 million, for a total of $1.26 billion.
  • The company announced the brand of its new chips, called Ryzen. One example of the technology’s power: Combined with its Vega GPU, it allows a desktop to run Star Wars: Battlefront – Rogue One at 60 frames per second in 4K.
  • The company announced a collaboration with Alphabet Inc (NASDAQ:GOOGL, NASDAQ:GOOG) for the Radeon GPU technology for cloud computing.
  • AMD announced Radeon Instinct, which allows for high-end deep learning. The product is expected to hit the markets in the first half of this year.

AMD Is Primed for Growth

UDPATE: Management typically is conservative when it comes to earnings guidance, so we can anticipate nice traction in 2017, driven by Ryzen. For the most part, the technology looks like it has better performance and power usage compared to Intel Corporation’s (NASDAQ:INTC) 8-core, 3.2GHz Core i7-6900K that came out in May — and it’s cheaper.

No surprise, then, that Alphabet has teamed up with AMD. But don’t expect the large-cap tech partnerships to end there, and instead expect them to extend to the likes of Facebook Inc (NASDAQ:FB) and, inc. (NYSE:CRM)? Headline-making deals like this could very well drive AMD stock in 2017.

From CEO Lisa Su:

“As we enter 2017, we are well  positioned and on-track to deliver our strongest set of high-performance computing and graphics products in more than a decade.”

So, should bulls exercise any caution?

Well, AMD stock has already staged an amazing rally, and yes, we probably won’t see a repeat of 2016’s triple-digit gains.

After all, Advanced Micro Devices’ market cap is now close to $10 billion. Thus, it would need to generate a hefty $450 million in net earnings to get at a 25X multiple. But Wall Street frankly might not care.

AMD stock has become an excellent momentum play. Shares have become a way to play some of the hottest markets in technology, including augmented reality and artificial intelligence.

As long as growth keeps perking up, AMD still could have enough fuel to provide investors with market-beating returns.

AMD Stock Charts

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If Tuesday’s after-market results hold through Wednesday morning, AMD stock should bounce off its 50-day and 20-day moving averages to roughly $11. From there, shares would see price resistance at around $11.50, then $12 — its multiyear peak.

Meanwhile, AMD stock is far from gassed, with the Relative Strength Index coming in right around the center point at 50.

Tom Taulli runs the InvestorPlace blog IPO Playbook and is a registered investment adviser representative (you can visit his site to learn more about his financial planning services). He is also the author of various books on investing like All About Commodities, All About Short Selling and High-Profit IPO Strategies. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.

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