Advanced Micro Devices (NASDAQ:AMD), the best-performing stock in the S&P 500 in 2019 and 2018, has got more room to run in 2020 as it continues to take market share from its struggling larger rival Intel (NASDAQ:INTC). That’s not too shabby given that not too long ago AMD stock was considered an after-thought to many investors.
Look, I would generally be hesitant to recommend a stock that surged more than 150 percent in 2019 and trades a nose-bleed multiple of 250. However, AMD stock keeps going like the Energizer Bunny, and I don’t see anything slowing it down.
The $50 price target that RBC issued on Nov. 15 when AMD traded at $38.56 doesn’t seem so crazy now that the shares are trading at $48.39. Ditto for Rosenblatt’s target of $52 published three days later.
Of course, Intel isn’t taking AMD’s resurgence lying down. The largest chipmaker has slashed prices for some of its high-end gaming chips and likely will continue to ratchet up the discounts. A price war would wind up hurting AMD’s profits as well, but INTC is clearly in the weaker position. Wall Street analysts expect AMD’s revenue to surge more than 26 percent in 2020. They forecast Intel’s revenue growth 1.8 percent during that same time period.
Ties to Microsoft
AMD is benefitting from its close ties with Microsoft (NASDAQ: MSFT), which is using AMD’s Ryzen 3,000 chips in the Microsoft Surface 3, the latest iteration of the company’s tablet. Previous Surfaces relied on INTC chips exclusively.
Microsoft and rival Sony (NYSE:SNE) are both using AMD technology to power the next-generation Xbox, and PlayStation gaming consoles do to be released this year. If the gaming press is accurate, both should be must-haves for the 2020 holiday season.
The tech press is chock full of praise for the Santa Clara, Calif-based company’s technology and prospects. The media loves a good underdog story, particularly one like AMD which is gaining ground on a larger incumbent rival like INTC. Think of it as the corporate equivalent of “The Little Engine That Could.”
Digital Trends described AMD’s new generation of its Ryzen 3000-series processors that were released last year as “the best chips AMD has ever made and they’re more competitive with Intel than the red team has been in more than a decade.”
Some Ryzen chips sold so well that there were shortages.
The Bottom Line on AMD Stock
The surging popularity of Epyc is coming at the expense of INTC. Market observers expect AMD’s share of the server market to more than double in 2020. This development is a significant achievement since AMD had left the server market to INTC until recently.
While INTC continues to be the dominant player in semiconductors, the inroads that AMD has made are too significant to ignore. My colleague Wayne Duggan makes a persuasive case why INTC is a “compelling value” at its current price. AMD isn’t anyone’s idea of a bargain. However, it is an intriguing proposition for investors with a high tolerance for risk.
Jonathan Berr doesn’t own shares in any of the aforementioned stocks.