Don’t agree with the most recent analyst assessment of Advanced Micro Devices, Inc. (NASDAQ:AMD)? Don’t sweat. In the same vein as the old cliche ‘If you don’t like the weather in [insert your state here], just wait five minutes for it to change.’ Analyst opinions of AMD stock change pretty regularly.
Case in point: A week ago Morgan Stanley reiterated its pessimism on AMD stock, mostly concerned that its plausible future earnings can’t justify its current price. The next day, Argus upgraded AMD stock, touting sustainable earnings growth seen in the recently-reported quarter.
It’s a vexing situation for current and prospective owners of Advanced Micro Devices, and the mixed messages are certainly nothing new. The trick is understanding that in some regards both of the aforementioned analysts were right. Neither analyst said what needed to be bluntly said though.
That is, AMD stock is still a name driven more by its premise and story, and less by results.
Ignore that reality at your own peril.
What They Said
Morgan Stanley’s Joseph Moore reiterated his “Underweight” of AMD stock despite the recent earnings beat. His worry was rooted in long-term worry.
He explained “We see 2018 as a very strong year on multiple fronts… But we’re not sure that in totality those things get better in 2019, which limits our willingness to pay a high multiple on 2018 earnings.”
It’s not an unmerited worry. With Bitcoin and other cryptocurrencies being chopped in half just since December, demand for crypto mining hardware likely cooled in a hurry, and perhaps permanently.
Meanwhile, though new artificial intelligence applications have leaned heavily on graphical processors that make up a huge portion of AMD’s revenue pie, rival NVIDIA Corporation (NASDAQ:NVDA) has been the go-to hardware supplier for the bulk of the AI movement to date.
Throw in the fact that Intel Corporation (NASDAQ:INTC), once a partner and ally of Advanced Micro Devices, is now starting to compete with the company on the GPU front, Moore’s doubts makes sense.
Argus analyst Jim Kelleher isn’t so concerned, however, upgrading Advanced Micro Devices stock following its Q4 report to a “Buy,” noting the strong revenue guidance for the quarter underway.
Though he concedes AMD’s profit margins are not yet “industry competitive,” (and at a trailing P/E of 293, they’re not), Kelleher likes what he thinks he sees for the future.
Moore’s price target of $8.00 and Kelleher’s target of $18.00, compared to the stock’s current price of around $11.60, underscore just how unclear that future is. If the pros are sitting on the opposite sides of the table…
Now What?
The opposing points of view aren’t intended to confuse traders, even if that’s the outcome. They simply indicate what most traders innately know about Advanced Micro Devices. That is, it’s a work in progress, and nobody really has a good grasp on what the future holds.
That’s not to say you should steer clear of it. Indeed, that indecision helps drive the wild swings that so many traders have loved over the course of the past couple of years.
Make no mistake though. AMD stock hasn’t been an actual investment at any point during that span. It’s only been, and continues to be, a trade… sometimes bullish, and sometimes bearish. The latest round of analysts’ views on the stock make it clear that no traders on either side of the table want to dig their heels in too deeply just yet.
To that end, those traders may be taking their cues from the chart’s history as much as they are the headlines. If that’s the case, expect the market to see the AMD glass as half-empty in the near future.
Take a look at two different things going on here. One of them is how AMD stock has been trapped in a horizontal trading range since early last year. The other is how AMD has started a string of lower highs and lower lows.
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Look for these lines to play a role in the stock’s movement going forward. Don’t be surprised when the headlines start to jibe with the stock’s action as those lines are met.
Bottom Line for AMD Stock
None of this is to suggest there will never come a time when Advanced Micro Devices stock doesn’t move in a way that reflects the company’s results and plausible prospects. That almost certainly will happen as some point in the future.
We’re not yet at that point, though, and until then, be prepared for more twists and turns as the world continues its effort to figure this company out.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities. You can follow him on Twitter, at @jbrumley.
