2019 was the definition of a banner year for Advanced Micro Devices (NASDAQ:AMD). The company made big strides against its competitors, and AMD stock delivered a 148% return on the year.
That made it the best-performing stock on the S&P 500. It was also the most valuable AMD shares have been since 2000. The downside to such a spectacular performance? The odds are against the company being able to repeat it.
In fact, most analysts are betting against AMD stock being able to hold onto its current $50 price by the time 2020 winds down.
With that said, let’s dive deeper into AMD.
Starting 2020 at a High Point
The biggest factor that will prevent investors in AMD from seeing the kind of returns they did last year is the relative starting position of AMD stock.
In 2019, AMD began the year near the low point of the “crypto hangover” that hammered both it and Nvidia (NASDAQ:NVDA). When the bottom dropped out of the cryptocurrency market leaving the companies with a glut of unsold graphics cards, their stocks tanked. AMD lost 46% of its value in little over a month in the fall of 2018. It closed 2018 at $18.46, setting the stage for a big recovery in 2019.
Investors who snapped up shares at that low point have been handsomely rewarded because in 2019, the company was firing on all cylinders. It was giving Nvidia fits and gaining market share on Intel (NASDAQ:INTC). Advanced Micro Devices even pulled off the coup of having Microsoft (NASDAQ:MSFT) put a Ryzen processor in its most powerful Surface 3 laptop.
This year, AMD is starting from a position of strength. It closed on the first day of trading at $49.10, an all-time high. To repeat the gains of 2019 — and that 148% return — would mean AMD topping $120. Even the most optimistic investment analysts are pegging AMD’s 12-month price target at $65.
Still Many Positives for 2020
While investors are highly unlikely to see triple-digit gains again in 2020, AMD expects to have some big wins this year.
The company started out January by making a big splash at the Consumer Electronics Show. At CES 2020, AMD took the wraps off its new Ryzen 4000 series of mobile processors. This is big because while the company made big gains against Intel last year in desktop CPUs, it wasn’t quite as successful when it came to laptops.
However, AMD says the Ryzen 4000 series seriously outperforms Intel’s best. With more than 100 systems already signed up to ship with Ryzen instead of Intel inside — added to that Ryzen-equipped Microsoft Surface Laptop 3 — 2020 is shaping up to be the year Advanced Micro Devices takes a big chunk out of Intel’s laptop stronghold.
Also of note, is the data-center market. AMD has been winning sales from Intel on this front as well, with its EPYC chips. However, 2019 was a down year, with global server sales slumping as enterprise IT spending tightened. That segment appears to be set for a recovery in 2020, with shipments projected to increase 6.6% on the year.
Another key highlight for the company in 2020 will be the holiday launch of next generation video game consoles from Microsoft and Sony (NYSE:SNE). Both the Xbox Series X and Playstation 5 will be powered by AMD hardware. Console sales slowed in 2019, but AMD will be working hard to meet launch demand of the new systems in 2020.
Bottom Line for AMD Stock
With earnings due to be reported in a few weeks, analysts are being cautious about AMD stock. Most have the stock as a “hold” and 12-month price targets are averaging just over $40. With the current price of shares at around $50, that’s significant downside.
However, there are still plenty of AMD bulls. Notably, Nomura Instinet recently raised its price target to $58. The bottom line is, if everything clicks for the company, it is well-positioned to have another year of positive growth.
Just don’t expect a repeat of 2019’s triple-digit growth.
As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.
