In October 2014, when Lisa Su was appointed as CEO of Advanced Micro Devices (NASDAQ:AMD), the company’s future looked hopeless. There was a legitimate chance of the company going bankrupt. Things were that dire.
But of course, the beleaguered company was on the verge of one of the most breathtaking turnarounds in tech history. During Su’s tenure, the AMD stock price has jumped from $3 to $41. Just this year, AMD stock has returned a sizzling 117%, putting the market cap of Advanced Micro Devices stock at $49 billion.
Su has been able to find the right balance between cutting costs, arranging the right partnerships (such as the ones she’s made in China) and pursuing innovation. For the most part, she has shown a strong ability to understand where technology is headed and how to monetize it. That is not easy to do because AMD is a resource-constrained company battling against giants like Intel (NASDAQ:INTC) and Nvidia (NASDAQ:NVDA).
Granted, its revenue growth is still meager. But it’s important to consider that AMD is targeting mega-market opportunities, which should lead to an acceleration of its growth in the coming years. AMD estimates that its addressable market is a whopping $75 billion.
A critical factor for Advanced Micro Devices stock is the company’s investment in next-generation 7-nanometer chips. That has enabled the company to jump ahead of the competition.
To get a sense of the progress the company has made, here’s a look at some of its main product segments:
- Ryzen: HP (NYSE:HPQ) and Lenovo have ramped up their use of this chip in their desktop computers. This month, AMD will launch its innovative 16-core processor and its third-generation Ryzen Threadripper processor. And on the mobile side, the company has been getting lots of traction. One notable deal was with Microsoft (NASDAQ:MSFT) for the development of the 15-inch consumer Surface Laptop 3.
- Radeon: In Q3, AMD began shipping its Radeon RX 5500 GPU. Already companies like Acer, HP, Lenovo and MSI have adopted AMD’s chips. All in all, the gaming market continues to grow at a nice pace, driven by factors like eSports. Next year the launch of new consoles from Sony (NYSE:SNE) and MSFT should further boost the sector.
- AMD’s EPYC Server Processor: This is perhaps the most important driver of Advanced Micro Devices stock. The cloud market is massive and is continuing to grow as companies increasingly use this technology for mission-critical functions. As for EPYC;s technology, AMD has developed processors with up to 64 cores. Consequently, the company has been able to snag deals with companies like Amazon (NASDAQ:AMZN), IBM (NYSE:IBM), MSFT, Twitter (NYSE:TWTR) and Tencent (OTC:TCEHY).
The Bottom Line on Advanced Micro Devices Stock
As shown by my columns for InvestorPlace.com, I’ve been bullish on Advanced Micro Devices stock for some time. For the most part, the company is positioned nicely to capitalize on multiple growth opportunities.
Yet despite all this, I think it’s time for a reality check on AMD stock. The fact is that much of its growth has already been factored into AMD stock price – and then some. For example, the forward price-earnings multiple of AMD stock is now at about 38. Many Wall Street analysts are also cautious on AMD stock. Note that their average price target on Advanced Micro Devices stock is $35.50, versus the current AMD stock price of $40.
Thus, for now, it’s probably best to be cautious on Advanced Micro Devices stock. After all, AMD’s prior earnings reports have been choppy. And given the lofty valuation of AMD stock, there is not much room for error.
Tom Taulli is the author of the book, Artificial Intelligence Basics: A Non-Technical Introduction. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.