Now, the question becomes whether the stock can move past last fall’s high of $34 per share. Thanks to the Samsung deal and other factors, earnings growth could help take AMD stock to new multi-year highs.
AMD will license intellectual property involving custom graphics to Samsung for mobile devices. Samsung will pay AMD both license fees and royalties under terms of the deal.
The deal brings AMD technology into Samsung phones. It also takes its competition with Nvidia (NASDAQ:NVDA) in graphics cards to a new level. This is yet another victory for the chipmaker as AMD recently won the race to power Sony’s (NYSE:SNE) next-generation PlayStation.
A Look at AMD Stock
This deal also represents a massive turnaround for a company that many had left for dead four years ago. AMD stock traded below $2 per share as recently as the fall of 2015. Thanks in large part to the turnaround driven by current CEO Lisa Su, AMD now trades at around $29 per share. Last fall, it briefly breached the $34 per share level, a level it had not seen since 2006.
Now, the question hinges on whether AMD can move beyond that multi-year high achieved last fall. I turned against the stock in the fall, near the multi-year high. I recommended that traders hold out for a lower valuation.
However, the outlook appears dramatically different from just nine months ago. Despite the stock price close to the levels of last September, AMD has achieved the lower multiple, at least on a forward basis.
Yes, analysts place its current price-to-earnings (PE) ratio at 115. However, due to forecasted earnings of $1 per share for 2020, this takes its 2020 forward PE to around 28. During that time, Wall Street forecasts profit growth of 41.3% this year and 53.8% the next. Moreover, these estimates could rise as analysts revise earnings estimates to reflect the impact of the Samsung deal.
Help from Crypto
Additionally, another factor could help AMD stock is the return of crypto. Crypto miners turned to AMD chips due to their lower costs. When bitcoin fell to around $3,000, interest in mining had fallen off a cliff. Chip prices fell along with crypto, and AMD suggested the market had completely dried up by the fourth quarter. Now with bitcoin surging back to the $8,500 level, crypto could again become a revenue source.
AMD also faces a new chapter with its long-time rivalry with Intel (NASDAQ:INTC). During the PC era, the company consistently played little brother to Intel. However, they have beat Intel on innovation in recent years, gaining market share in the area which Intel has bet much of its future, data centers. Intel appears finally set to release a 10nm processor.
However, AMD released its 10 nm last year. Moreover, AMD has already announced that it will release the Ryzen 3000 in the middle of the year. This will bring 7nm chips to the market. While Intel still holds the lead in data centers, AMD’s market share increases should help boost the stock price.
AMD Stock Can Top $34 Per Share
With the Samsung deal, investors wonder whether that can take the AMD stock price past the $34 per share multi-year high. The short answer is yes. Despite a currently elevated PE ratio, the current price of AMD places the 2020 forward PE ratio at about 28. With earnings increases expected to surpass the 50% mark by next year, and perhaps higher with the Samsung deal, it becomes hard to bet against Advanced Micro Devices stock.
Buying AMD stock now comes with some risk. An unexpected downturn in the market or tariff-related risks could cause a drop much like NVDA saw last fall. However, with the Samsung deal, the levels of profit growth, and the other competitive strides AMD has made over its rivals, the AMD stock price can achieve new multi-year highs.
As of this writing, Will Healy did not hold a position in any of the aforementioned stocks. You can follow Will on Twitter at @HealyWriting.