In 2016, Advanced Micro Devices, Inc. (NASDAQ:AMD) was all the rage on Wall Street. Going from $2 to $11, Advanced Micro Devices stock was the second-best performer on the S&P 500 that year.
Fast forward 14 months, and AMD still trades at $11.
That, in a nutshell, should tell you all you need to know about the current trajectory of Advanced Micro Devices stock. It’s going nowhere. But the stock has given investors enough hope over the last year-plus that there’s a chance many of you reading this may have been coaxed into buying it.
For example, last May and June, the stock made a quick leap up to $14, and appeared well on its way to $15. By August, it was back down to $12. By October, AMD was back up above $14 — only to come crashing back below $10 by early December. Last month, AMD stock made another false start, leaping up to the high $13s. Then, the market correction arrived in February and Advanced Micro Devices stock came crashing back to $11.
Advanced Micro Devices Stock Building Momentum Again
So, now that AMD is trending upward again, creeping up near $12, it’s tempting to buy into that momentum. Don’t fall into that trap — at least not until AMD demonstrates that it can sustain a run for more than a few weeks.
Fundamentally, there are no major red flags with Advanced Micro Devices, Inc. The company grew revenues by more than 24% last year — a decade high. And while the chip maker has never been consistently profitable, it has been in the black in each of the last two quarters — something it didn’t do during its major run-up in 2016.
Meanwhile, top- and bottom-line projections look even more healthy for the year ahead. Analysts expect sales to improve another 18%, including a 57% jump in the current quarter, and earnings per share to more than double. It’s worth noting, by the way, that AMD just beat fourth-quarter earnings estimates by 60%.
So what’s the problem? Did AMD stock simply run out of gas after a blockbuster 2016, and just can’t restart the engine?
In my mind, the stagnation in AMD has a lot to do with Nvidia Corp. (NASDAQ:NVDA), one of its chief competitors in the semiconductor space. While the two companies make different kinds of chips, to investors they occupy very similar spaces: they’re large-cap chip stocks that make billions of dollars per year. The difference is, Nvidia, despite being the larger company, is growing much faster. In 2017, NVDA increased sales by 40% and earnings by 65%. Nvidia hasn’t lost money since 2009, right in the thick of the recession, and is coming off its most profitable year, with earnings topping $5 per share.
Thus, Wall Street has continued gobbling up NVDA stock, helping the share price more than double in the past year, while treating AMD stock with either indifference or mistrust. Hence, the quick flameouts after every mini-rally. With greater revenue growth and a long history of consistent profitability, Nvidia is the more mature chip maker, not to mention the more sexy option, what with its ties to the video game industry, cryptocurrency and self-driving cars.
NVDA a Better Choice
Is there hope that Advanced Micro Devices stock will break out of its year-plus malaise? Of course. The company isn’t broken. And if you believe analysts estimates, 2018 could be a banner year.
If anything, a breakout in AMD at some point this year is more likely than not. But until the stock can sustain a run above the $11-$12 range for more than a few weeks, I wouldn’t touch it.
At some point, AMD needs to reprove itself again. Until then, NVDA looks like a better choice.
As of this writing, Chris Fraley did not hold a position in any of the aforementioned securities.