Mega-cap tech companies — in particular chip stocks and FANGs — have driven 2017’s broad-market rally. However, smaller Advanced Micro Devices, Inc. (NASDAQ:AMD) has been in on the fun, too, up more than 180% over the past year, and boasting a run of as much as 17% year-to-date last week. That was before AMD stock gave up almost 5% on Friday amid Goldman Sachs’ warning about a tech bubble.
Now, Advanced Micro is off another 5% on Monday morning. No driver has been confirmed, but the most prominent whisper is that Goldman Sachs analysts are reiterating their “Sell” rating on AMD.
Regardless of the cause, the short-term momentum in Advanced Micro Devices has been halted. However, with some patience, investors can still realize some 25% returns in AMD stock, which I expect will reach $15 per share by the end of the year.
Aside from the recent launch of its Naples chip, which is expected to drive higher revenue in the second and third quarters, AMD will also launch two other Zen-based chips as the year progresses, creating multiple catalysts for shares to cruise higher.
That means this sudden dip in AMD stock could be one of few buying opportunities investors have left.
Why Advanced Micro Still Is Fine
Monday’s declines should put AMD shares somewhere around $11.70 or so — still good for a market-matching gain of about 9% in 2017, but far better than the sub-$2 level they traded at as recently as early 2016.
The Sunnyvale, Calif.-based chip company has made a habit out of proving doubters wrong. It continues to benefit from strong growth in its popular Radeon line GPUs (Graphics Processing Unit). There are also signs that the declines in PC sales have begun to stabilize.
Thanks to the company’s recent partnership with Alphabet Inc (NASDAQ:GOOGL), where its FirePro server GPUs will power Alphabet’s cloud platform in 2017, AMD’s revenue growth should accelerate in the quarters ahead. A place in Apple Inc’s. (NASDAQ:AAPL) iMac Pro should help, too.
For the full year ending in December, AMD is expected to earn 7 cents per share, versus a loss of 14 cents a year ago, while full-year revenue of the $4.82 billion would mark an increase of almost 13% year-over-year.
The significant expected improvements — particularly in EPS — present an opportunity for both investors and traders alike to take advantage of this sudden pullback, which is being governed by panic and Wall Street’s worries about overheating, even though AMD has backed up its gains with increasingly attractive fundamentals.
There are a few areas of potential that the Street seems to be ignoring, too.
For instance, consider the booming field of cryptocurrencies. The rising price and demand for cryptocurrencies such as Bitcoin and Ethereum. The former is up about 160% this year, and the latter has soared by more than 2,800% year-to-date. This has increased the need for “mining” such cryptocurrencies, which in turn has boosted the demand for the type of graphic cards provided by AMD.
“The gaming market remains our priority. 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 Advanced Micro spokesperson told CNBC.
Given that AMD has become miners’ preferred choice for cryptocurrencies, shares should remain in high demand too as long as the trend in cryptocurrency remains upbeat.
Fundamentally, Advanced Micro Devices — fresh off a more than 18% rise in first quarter revenue — continues to execute on its stated objectives. And with AMD still enjoying higher average selling prices in both the Client segment and GPUs, now’s the time to own AMD, not sell it.
Bottom Line for AMD Stock
The positive outlook for cryptocurrencies may be temporary, and that alone is not a reason to bet on AMD. But the bigger story is the fact that Advanced Micro Devices is now well-positioned to benefit in multiple growth markets such as GPUs, artificial intelligence and improving demand for chips from professional enterprises.
AMD stock certainly is not the relative bargain it was when it fell below $10 last month. But it’s getting close thanks to this recent bout of tech jitters.
Thanks to higher average selling prices and growth in core revenue drivers, $15 per share remains a legitimate target.
As of this writing, Richard Saintvilus did not hold a position in any of the aforementioned securities.