Advanced Micro Devices (NASDAQ:AMD) stock is coming down off its near-record highs after the company met expectations in its first-quarter earnings report. The company posted Q1 earnings per share, excluding some items, of 18 cents on revenue of $1.79 billion. Its EPS was exactly in-line with analysts’ mean estimate. The company’s revenue came in slightly above the average outlook.
AMD’s Q1 revenue and EPS rose meaningfully versus the same period a year earlier. In Q1 of 2019 the company generated EPS of 1 cent on revenue of $1.27 billion. In its Q1 earnings report, AMD cited a 73% year-over-year increase in its revenue from its computing and graphics chip products as a reason for its strong results. Although analysts had expected its revenue from those products to increase, the number exceeded even those elevated expectations.
But AMD’s revenue from its enterprise embedded and semi-custom chips sank 21% YOY. Those are the chips used in data centers and gaming consoles. Analysts, on average, had expected a 4% increase in its revenue from that category.
The question now becomes, what can AMD do for an encore? The company received a big lift from the sheltering-in-place orders that have forced millions of Americans to work from home. Now the U.S. economy is slowly beginning to re-open. Will AMD be able to build on its recent momentum?
Advanced Micro Devices Has Had a Year to Remember
After a stock price increases by over 100% in a single year, it’s normal to be a bit skeptical about the shares. I was guilty of that when I wrote about AMD stock in December. At the time, the stock was closing in on levels it hadn’t reached since the dot-com boom. With optimism brewing over the recently signed Phase One trade deal with China, I thought investors were buying AMD based on that news.
But AMD ultimately exceeded its dot-com high. And even a brief decline of the shares when the Covid-19 pandemic first broke out only briefly stalled the stock’s momentum. To be fair, both Intel (NASDAQ:INTC) and Nvidia (NASDAQ:NVDA) have also seen their stocks rise 15% and 60% respectively in the past 12 months. At one point, Intel stock had increased by as much as 34% and NVDA stock had jumped by as much as 75%. But AMD has easily outperformed both stocks.
Ian Cooper, another InvestorPlace columnist, pointed out a few catalysts for AMD stock. One is the increased demand for data center chips driven by Zoom Communications (NASDAQ:ZM). Another catalyst brought about by the novel coronavirus is the cloud computing space. Businesses and individuals are now working and playing games at home, which should create an insatiable demand for the company’s products.
What’s Next for AMD Stock?
AMD stock is up nearly 100% in the last year. And investors who bought the stock on Jan. 2, 2020 are sitting on a nice 17% gain. In light of the coronavirus crisis, that’s surprising.
Advanced Micro Devices provided guidance for the remainder of 2020. The company warned that it may experience a slowdown in the next few quarters. It predicted that its sales would grow 20% to 30% this year, versus its previous prediction of a 28%-30% gain.
And the company may very well hit that target. AMD expects the work-from-home trend to continue to boost its results. Plus, many of the leading gaming companies will introduce new consoles by the end of the year.
That’s exciting news for AMD investors. But as InvestorPlace contributor Thomas Niel pointed out, AMD stock is currently priced to perfection, with a forward price-earnings ratio of 51.3.
That leaves it a little wiggle room (but just a little) to report lower-than-expected sales. I bet against AMD stock before, and I can understand why analysts’ average 12-month price target is $46.32. I’m not betting the stock will drop that far, but I can’t see it going much higher right now. I think AMD stock is a wait-and-see name at this point.
As of this writing, Chris Markoch did not hold a position in any of the aforementioned securities.