This week, Cowen & Co. analyst Matthew Ramsay named semiconductor firm Advanced Micro Devices (NASDAQ:AMD) as one of the “Best Ideas” for 2019. Ramsay believes AMD stock price will make its way to $26 per share in the coming year, suggesting a 24% upside for investors who jump in now.
The positive attention took the stock 3% higher and gave investors a reason to reconsider AMD stock after its fall from grace in October. While the $26 price target wouldn’t bring AMD’s stock price back to its highs above $40 per share reached back in 2000, it does offer a significant upside to those looking to shore up their portfolios before year-end.
Why the Praise for AMD Stock?
Ramsay cited higher profitability in the year ahead as reason for his optimism regarding AMD stock. He pointed to AMD’s move to manufacture 7-nanometer products as a huge catalyst for the stock and I’d tend to agree.
If AMD is able to bring 7-nanometer chips to market quickly, it would mark a huge turning point in the company’s efforts to compete with Intel (NASDAQ:INTC). As AMD works to bring out 7nm chips, Intel is still struggling with 10nm CPUs. This is a big deal because it will be the first time AMD has gotten out in front of Intel.
Aside from that, AMD is making solid progress against NVIDIA (NASDAQ:NVDA) in the graphics card space, especially after NVDA’s GeForce RTX graphics cards received a tepid welcome when they hit the shelves this year. That has opened a window of opportunity for AMD and if the firm is able to dazzle with its next graphics release, we could see AMD steal a notable chunk of NVIDIA’s marketshare.
What About Cryptocurrencies?
To be sure, AMD stock is hurting from the decline of cryptocurrencies. The company’s chips are widely used by cryptocurrency miners, so when Bitcoin took a nosedive AMD was pulled down for the ride. However, that doesn’t mean AMD stock can’t rise independently from cryptocurrencies; the firm has plenty of other businesses that are growing rapidly.
Of course, it’s not all roses for AMD: investing in the stock in the hopes of long-term gains will take nerves of steel when you consider the likelihood of wild swings along the way.
As fellow InvestorPlace writer James Brumley pointed out earlier this month, AMD is caught in a yo-yo effect that seems to go up and down on a flicker, or more aptly, a headline. AMD stock has been extremely susceptible to the news cycle, which has caused the stock to rise and fall on the whims of commentators — something long-term investors would have to take in stride.
Plus, there’s some question as to whether or not AMD’s rosy projections are actually accurate. AMD CFO Devinder Kumar said the firm will likely deliver a mid-20% growth rate this year, but in order to make good on that promise, MAD will need to post fourth-quarter results at the top end of management’s guidance. Even a mild stumble could be devastating for AMD stock price.
On top of that, some analysts see AMD raising its debt obligations considerably in the years ahead. That’s important to consider because with interest rates on the rise, taking out loans is a much greater financial obligation than it has been in the past.
Finally, there’s the fact that the tailwinds that AMD enjoyed from a boom in cryptocurrency mining could hurt the firm in the year ahead as it tries to clear out inventory in the coming quarters.
The Bottom Line on AMD Stock
AMD stock has its baggage, but overall I think the company looks poised to grow steadily in the year ahead.
The stock will likely be helped by encouraging news regarding AMD’s rivalries with Intel and Nvidia. And I wouldn’t be surprised to see the share price make its way to $26 per share in the months to come. If you can stomach some ups and downs along the way, AMD isn’t a bad pick for your 2019 buy list.
As of this writing, Laura Hoy did not hold a position in any of the aforementioned securities.