AMD Stock’s Near-Term Performance Will Be Based on U.S.-China Relations

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Advanced Micro Devices (NASDAQ:AMD) stock has finally accomplished a milestone with which it had struggled for over a year. During that time, AMD stock price had pulled back each time it’s reached $34 per share.

AMD Stock's Near-Term Performance Will Be Based on U.S.-China Relations

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However, following the company’s recent third-quarter earnings beat and optimism surrounding China trade talks, the AMD stock price has finally broken through that barrier.  Still, since a snag in the negotiations with China could stop the rally, the near-term outlook of AMD stock now hinges on U.S.-China relations.

The Price Ceiling Has Finally Broken

The price ceiling has finally shattered. The AMD stock price reached a new 52-week high of $37.18 per share on Nov. 7 before pulling back slightly to around $36.50 today.

InvestorPlace contributor Chris Tyler noted the lukewarm response by Wall Street soon after AMD reported its Q3 earnings on Oct. 29. He stated that Wall Street’s reaction was wrong and rightly called Advanced Micro Devices stock a buy following the report. The market quickly proved him correct.

The question now is, where will AMD stock price go next? Tezcan Gecgil thinks it will reach $45 per share. That would put it in the range of its 2000 peak of $48.50 per share and its 2006 high of $42.50 per share. Still, $45 is meaningfully above the stock’s current level.

However, investors need to remain mindful of events that could trip up Advanced Micro Devices stock. Most of the negative catalysts that could hurt AMD stock involve China either directly or indirectly. Right now, it looks like the U.S. and China might finally reach a trade agreement.

In a sense, traders who bought AMD stock should feel thankful that Wall Street is optimistic about the prospects of a U.S.-China deal. That bullishness probably helped AMD stock price break through $34. However, since  tentative deals between the countries have fallen through previously,  I think investors should remain wary of such proclamations. As InvestorPlace columnist Josh Enomoto stated, AMD and its peers such as Intel (NASDAQ:INTC) and Nvidia (NASDAQ:NVDA), moved higher on the news.

More importantly, at least some of the analysts who published forward revenue and earnings estimates for AMD are likely assuming that a trade agreement with China will be implemented. If such a deal does not materialize, these analysts will likely lower their estimates for AMD.

AMD Remains Solid

Still, otherwise the outlook of AMD stock is upbeat. Its 33.3 forward price-earnings (PE) ratio might look high at first glance. However, considering analysts, on average, expect  its earnings to climb 34.8% this year and 75.8% in 2020, I would describe that multiple as “expensive, but worth it.”

Investors must also credit the leadership of AMD’s CEO, Dr. Lisa Su. Though AMD has existed since 1969, it has spent most of its history playing “second fiddle” to Intel. It took almost 50 years, but AMD has now forced Intel to play catch-up. As a result, analysts at Nomura Instinet say the company has made market share gains in nearly every category, including data center, notebook, and desktop processors.

With AMD stock price heading toward the high-$30s per share range, I also feel optimistic about the shares’ short-term outlook. Still, Advanced Micro Devices now needs geopolitics to turn in its favor.

The Bottom Line on AMD Stock

China is now the main factor driving AMD stock. Like its main peers, AMD depends heavily on China to fuel its growth. That is why AMD stock price climbs significantly on the mere hint of a trade deal.

If that obstacle can be overcome, AMD’s expected growth rates make paying a high multiple for the shares worthwhile. Moreover, the leadership of Lisa Su continues to make AMD a top company in its space.

However, those factors will mainly impact the long-term performance of AMD stock. For now, if you want to predict how AMD stock will perform, watch the trade talks.

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.

 


Article printed from InvestorPlace Media, https://investorplace.com/2019/11/broken-ceiling-amd-stock-china/.

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