With shares treading water in the mid-$50s, what’s next for Advanced Micro Devices (NASDAQ:AMD) stock? The chip giant rebounded from its novel coronavirus sell-off lows. But now, with the stock trading close to where it was pre-pandemic, can investors expect more upside in the near-term?
It’s debatable. On one hand, despite a challenged overall economy, large-cap tech names like this could continue to move higher. But, besides the overarching support for tech stocks, there’s also a strong case for the company’s underlying business.
Between the company’s projected double-digit sales growth this year, along with its continued market share gains from rivals Nvidia (NASDAQ:NVDA) and Intel (NASDAQ:INTC), betting against this company still looks like a bad move.
On the other hand, how about the macro picture? If the overall economic maelstrom continues through 2020, what’s to say the company can meet its prior growth projections? Also, the U.S.-China trade war appears to be starting back up again. This could result in additional headwinds in the near term.
Granted, I’ve been on the wrong side of AMD stock since last summer. In prior analysis, I doubled down on my bearishness. However, without an economy firing on all cylinders, it’s tough to expect this company to continue “crushing it” like it has in the past year.
Why AMD Stock Could Still Prove Me Wrong
As our own Louis Navellier wrote May 19, there may still be “plenty of gas left in the tank” for Advanced Micro Devices shares. First, the novel coronavirus may have been a tailwind, not a headwind, for the company’s underlying business.
Second, and perhaps more importantly, AMD continues to gain market share. Thanks to its Ryzen 4000 processors, AMD is eating Intel’s lunch. With GPUs, Nvidia continues to dominate the market, with 69% market share. But AMD’s market share now (31%) is significantly higher than where it was at the end of 2018 (around 18.8%).
Simply put, momentum continues for Advanced Micro Devices. The days of it being a chip “also-ran” are long over. However, does this mean the company’s shares could still climb higher?
If the stock market remains strong and the company meets expectations, it’s possible. Even after revising 2020 numbers to reflect coronavirus impact, analyst consensus calls for $8.4 billion in sales this year. That’s still around 24.8% growth from 2019.
Double-digit growth could continue into 2021, with analysts estimating $10.2 billion in sales. In other words, 21.4% sales growth.
With continued growth projected, why go against AMD stock right now? Despite these attractive numbers, many things could go wrong in the coming quarters.
Priced for Perfection in Uncertain Times
Now that we’ve discussed the bull case for Advanced Micro Devices, let’s dive into the bear case. For one thing, despite a challenging economic environment, shares continue to be “priced for perfection.” Sure, perhaps I’m not looking at the situation the right way.
The current environment is going to be harder for old-school businesses than it is for the tech space. But, what’s to say tech is immune from overall economic weakness?
A recent article from Barron’s gives several reasons why tech names like AMD aren’t so bulletproof. For example, what’s to say consumer demand (via PC and video game console purchases) will remain strong? Things look OK right now, with stimulus and unemployment checks flowing. What happens when the spigot is cut off, but unemployment lingers?
Businesses may tighten their belts too. That means fewer PC sales, impacting chip demand. Also, enterprise cloud sales could take a hit in the next two quarters. To top it all off, the company’s battle with Intel continues.
And now, with U.S.-China trade tensions returning, there’s now an extra layer of concern. In short, plenty of reasons why the company may disappoint. Any dent to the company’s growth story could mean shares fall back to the $30-$40 price range. Or lower.
As Shares Top Out, Consider AMD Stock A Sell
I’ll admit I’ve been wrong on Advanced Micro Devices for quite some time. More concerned with valuation, I missed the forest for the trees in terms of the company’s solid growth prospects.
Yet, despite continued bullishness in the stock market, we aren’t at the top of the cycle like in months prior. With more reasons now for the company to fall short of expectations, consider AMD stock a sell as shares top out around $55 per share.
Thomas Niel, contributor to InvestorPlace, has written single-stock analysis since 2016. As of this writing, Thomas Niel did not hold a position in any of the aforementioned securities.