Every now and then investors can let emotions get the better of them, buying (or selling) a stock for all the wrong reasons. Advanced Micro Devices (NASDAQ:AMD) has been one of those stocks. While its turnaround is real, the bulk of the 200%+ rally AMD stock has dished out since mid-April was rooted in hype rather than results.
That’s usually not a trap level-headed analysts fall into. They get paid to think critically and clearly, and most of them have seen enough to know a stock’s price always, eventually, reflects a company’s fundamentals.
Over the course of the past several days, though, it appears more than a few professional stock handicappers have jumped on the bandwagon for all the wrong reason. Afraid of not making a bold call on a red-hot stock, a couple of newcomers have served up head-turning price target increases and upgrades. It looks as if even the pros are losing perspective.
Johnny-Come-Latelies
The latest entry into the contest of who’s willing to make the most aggressive call on AMD stock? Stifel Nicolaus analyst Kevin Cassidy raised his price target on Thursday, from $21 to $38. That’s more than 20% higher than Wednesday’s close near $31.
That upped target was even bolder, though less dramatic, than Morgan Stanley’s big swing from the day before. Prior to Wednesday, its target on Advanced Micro Devices stock was only $11 — well below the consensus and its actual price — but analyst Joseph Moore catapulted his target to $28, explaining that rival Intel (NASDAQ:INTC) has “oversold” the actual value of its processors in the past and was now paying the price for lazy R&D and excessive pricing.
That move followed Tuesday’s new call from Mizuho analyst Vijay Rakesh. He raised his target 80% in one fell swoop, from $20 to $36. He also upped his target on Nvidia (NASDAQ:NVDA), though more modestly, from $280 to $295.
Question: Where the heck were these guys, and where was their optimism, just a month ago when AMD shares were hovering around $20? As of mid-August, these pros were saying the stock was only worth around $18.30. Now these analysts are saying it’s worth nearly $24 per share.
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Might these professionals merely be hoping to capture a piece of the momentum, since most of them missed the bulk of the rally between May and August? Just asking.
It’s a close cousin to “performance chasing,” which is simply the act of buying into a stock hoping its recent-past gains will continue, whether or not you can reasonably expect more gains ahead. Sometimes that is a reasonable expectation, when the hype is strong enough — and it may well be strong enough with a well-loved turnaround story like Advanced Micro Devices. It doesn’t take a trading veteran to realize, however, that this kind of mentality is tantamount to playing with fire.
You just usually don’t see it with analysts, one of which currently sports a price target of $40.
Doubters Stick to Their Guns
And just for the record, it’s not like crazy calls aren’t materializing at the other end of the spectrum. Piper Jaffray’s chief market technician Craig Johnson just cautioned this week that, given its history, AMD stock could fall as much as 100%.
There was no fundamental basis to the argument. It was a purely technical one, ignoring the recent revenue and earnings trajectory.
The lowest analyst target for Advanced Micro Devices stock right now is $7, which is 77% less than its current price. The range of price targets on AMD may (relatively speaking) be the widest for any equity.
Bottom Line on AMD Stock
Calling a spade a spade, a handful of analysts have been lured into the hype, suffering the same FOMO (fear of missing out) all amateur investors do. A wide swath of them didn’t become bullish until it became very easy to be bullish — when the stock was racing higher. That’s fine, but as was noted, it can be a dangerous game. The music will stop playing sooner or later, and there’s simply not enough fundamental justification for a price anywhere near its current price.
The real headache for investors is, however, sifting through all the differing analyst calls; even some of the optimistic ones are paired with target prices below the stock’s present price.
The consensus price target is right around $24 right now, and the consensus is usually an on-target figure. Traders would be wise to expect a trip back to that area sooner or later. Until then, there are any number of possible outcomes. If you’re riding the hype, be careful.
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.
