Advanced Micro Devices, Inc. (NASDAQ:AMD) hit its 52-week high 0f $15.65 on July 26, thanks to 236 million shares traded — four times the average daily volume of AMD stock.
What was the big deal?
Strong second-quarter earnings, driven in part by the significant demand for cryptocurrency applications.
“AMD turned in a solid beat to our and consensus estimates as the company’s new Ryzen desktop CPU ramped into production and GPU demand outstripped supply,” Stifel analyst Kevin Cassidy wrote July 26 in a note to clients. “While management wasn’t specific on how much, the GPU revenue upside was driven by cryptocurrency applications.”
Anytime a company isn’t specific about numbers, as is the case with cryptocurrency, it usually means it’s not material to earnings.
Oh, So Close
At the end of May, I suggested that Nvidia Corporation (NASDAQ:NVDA) would hit $200 before AMD hit $16. On July 26, AMD stock came within 35 cents of making me wrong (at the time, NVDA stock was at $167 — a long way from $200), but has since slid all the way down to below $10, the lion’s share of the decline coming after third-quarter earnings showed some cracks in its growth story.
The biggest being guidance that suggested AMD won’t grow revenue on a sequential basis in the fourth quarter for the first time in six quarters.
In my Nov. 7 article about NVDA stock, I suggested that the AMD stock price could hit single digits as early as Nov. 9, based on Nvidia’s earnings report.
Well, Nvidia reported Q3 2018 revenue of $2.64 billion and provided Q4 2018 guidance of $2.65 million in revenue, less than a 1% sequential increase and a 22% increase over the same quarter a year earlier.
These good, but not great, results sent Nvidia stock as high as $215 in the days following its earnings report, but NVDA has since given the gains back (and then some) on news that the passing of a tax plan would mean rotation out of tech stocks like NVDA and AMD.
AMD Stock Below $10
In late October, I ratcheted up the rhetoric by wondering if NVDA stock would hit $350 before AMD stock reached $25.
As I write this, AMD is trading a few cents below $10, which means it’s got to appreciate by 150% to hit $25, while NVDA only needs to increase by 83% to hit its target.
AMD’s got its work cut out for it considering NVDA’s expected to earn $4.16 per share in fiscal 2017, $4.68/share in 2018 and $6.02/share in 2019, while AMD’s expected to earn $0.53 per share in fiscal 2019.
While Nvidia’s forward 2019 price-to-earnings ratio is 31, or almost double AMDs, Nvidia’s earnings work out to $4.0 billion in 2019, with 660 million shares outstanding, compared to $458 million in earnings for AMD in 2019, with 865 million shares outstanding.
I’m going to buy the stock with $4 billion on the bottom line every day of the week.
Bottom Line on AMD Stock
Like the South, AMD may rise again, but it’s more likely the party is coming to a close. Maybe not today or even this time next year, but, at some point, AMD shareholders are going to be left holding the bag.
Unless, of course, AMD is put in play. Then, the sky’s the limit.
Would I buy AMD stock at this point? No, I wouldn’t. But if you want to gamble on AMD being acquired in 2018, now’s about as good a time as any.
As of this writing, Will Ashworth did not hold a position in any of the aforementioned securities.
