Advanced Micro Devices Looks Attractive, But It May Be Better to Wait

CNBC’s Jim Cramer believes the charts are showing very bullish signs for Advanced Micro Devices (NASDAQ:AMD). Down below $40 in mid-March, AMD stock has roared back to the mid-$50s, up 20.3% year to date through May 22.

Management Delivers a Strong Long-Term Investment Case for AMD Stock
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With plenty of catalysts to keep AMD’s stock moving higher, it appears ready to retest February’s all-time high of $59.27. Is $60 and up already a done deal?

AMD Stock is Ready to Break Into the $60s

I’m not much of a chart technician, so I’ll have to take Cramer’s word that AMD stock is looking good for more appreciation over the second half of 2020. 

If the stock can break out above its old highs in the high 50s, he’s betting it has a clear shot to the mid-60s,” Cramer said on Mad Money May 13.

Since Cramer made this statement, AMD stock has drifted slightly higher over seven days of trading. But where it goes from here is anyone’s guess. While the wider economy might be suspect, the company continues to deliver new products to take on the likes of Nvidia (NASDAQ:NVDA) and Intel (NASDAQ:INTC). 

In early May, AMD launched its Ryzen Pro 4000 Mobile Processors, which are designed specifically to run commercial notebooks from both HP (NYSE:HP) and Lenovo (OTCMKTS:LNVGY).Per Saeid Moshkelani, AMD’s senior vice president and general manager for its client business unit:

“With the launch of AMD Ryzen PRO 4000 Series Mobile Processors, AMD once again defines the new standard for PC experiences. Built on the ground-breaking ‘Zen 2’ architecture and 7nm process technology, the AMD Ryzen for Business portfolio delivers advanced performance, reliable security features, impressive battery life and advanced manageability to significantly elevate the capabilities of the ultrathin notebook in any work environment.”

As we all become more comfortable with working from home, processors such as AMD’s Ryzen PRO 4000 are going to help companies continue to do good work while their employees perform on the fly. 

Gamers might need top-of-the-line performance, but so too will workers operating from a laptop a thousand miles from the head office. AMD’s latest mobile processors will do the trick.

It Needs to Take A Breather

In my most recent article about Advanced Micro Devices from mid-May, I suggested that given the meteoric rise of AMD stock, it might be time to give AMD stock a break. At the time, it was trading at just shy of $56. 

Don’t get me wrong, I think CEO Lisa Su is the bee’s knees, it’s just that felt it might have hit a wall. 

“With over half the 40 analysts covering AMD stock rating it as a ‘hold’ or a ‘sell’ with an average 12-month target price of $52.86, it’s got to deliver perfection in the second quarter and beyond for its stock to keep moving higher,” I wrote May 11. “It’s had a good run. It could be time for Nvidia to take the lead. Long term, though, as long as Su remains in charge, AMD is a winner.”

It appears I’m not the only one who feels this way. InvestorPlace contributor Thomas Niel recently wondered how AMD could keep moving higher as the economy struggles

My colleague makes the case that once the stimulus and unemployment checks stop coming in, consumer demand for PCs and video game consoles could similarly grind to a halt. Add to this a reluctance by businesses to spend money on new equipment and a reignited trade war with China and you’ve got the potential for AMD to miss its targets when it announces Q2 2020 earnings in late July. 

The one thing AMD has going for it: Last year’s second-quarter was a weak one with revenues and operating income falling by 13% and 40%, respectively. Since Q2 2019, the company’s had mixed results on a sequential basis. 

In the first quarter, revenues fell 16% from the fourth quarter while operating income declined by 41%. Another decline in sequential growth could hurt its share price. A Q2 2020 year over year decline in revenue and operating income would most certainly send AMD back into the $40s. 

Should You Buy at Current Prices?

Like my colleague, I’ll probably pay for this, but despite being bullish on the company and its CEO, I think you will get a better entry point later this summer. 

I don’t feel it’s ready to run to $60 and beyond. At some point in 2020, I believe it will trade in the $40s.  

Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia. At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.


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