With new products and markets on the horizon, Advanced Micro Devices (NASDAQ:AMD) stock is likely to continue running higher.
AMD stock has been a darling of technology investors for the past five years. Shares of the Santa Clara, California-based semiconductor company have risen more than 3,000% since 2015. The stock has appreciated steadily in that time, increasing from just $1.71 to $52 per share.
Analysts who track AMD say the bull run for the stock is likely to continue in the second half of this year. AMD’s third-generation Ryzen central processing unit (CPU) for desktop computers has been a winner and the company is preparing to launch its third-generation EPYC processor, called Milan, that should help it make further inroads into the fast growing data center market.
Also fueling growth heading into 2021 will be the launch of the new Sony (NYSE:SNE) PlayStation 5 and Microsoft (NASDAQ:MSFT) Xbox Series X gaming consoles — both of which are expected to launch in time for Christmas and each containing custom-made AMD chips.
The novel coronavirus lockdowns are expected to drive demand for the new gaming consoles, with analysts expecting robust sales through the first half of next year.
Cloud Gaming: The New Frontier
It is not just demand for gaming consoles that is booming during the Covid-19 shutdown. Cloud gaming has also taken off amid shelter in place orders. Online gaming services such as Nvidia’s (NASDAQ:NVDA) GeForce Now and Microsoft’s Project xCloud have seen a significant spike in use since mid-March.
Video game market research firm Newzoo forecasts that the market for cloud gaming will grow at an annual rate of 123% through 2023, and is likely to generate $5 billion in revenue over the next three years.
Explosive growth in cloud gaming is good news for AMD as the company has been supplying the chips and graphic processing units (GPUs) that power system’s such as Microsoft’s Project xCloud and Google’s (NASDAQ:GOOG, NASDAQ:GOOGL) Stadia cloud gaming service.
AMD has also announced a multi-year partnership with Oxide Games to improve the graphics in its cloud video games. Oxide operates the proprietary Nitrous Engine, which is specifically designed for cloud gaming and helping to push growth in the industry.
Unlike rival Nvidia, AMD is not developing a cloud gaming system of its own. Industry observers have applauded AMD’s strategy of focusing on its core microchip business rather than spreading itself too thin trying to be all things to all people.
While Advanced Micro Devices is well positioned to take advantage of current and emerging opportunities presented by the cloud in both gaming and data centers, to say that there is intense competition among semiconductor chip companies that make CPUs and GPUs for the gaming and professional markets would be an understatement.
AMD must continually fend off its main rivals Nvidia and Intel (NASDAQ:INTC). All three companies have been growing at a brisk pace over the past six months and that growth has been reflected in their stock prices. Intel’s stock is closing in on its 52-week high following March lows and NVDA stock has tested a new all-time high.
As for AMD stock, it has been bouncing between $51 and $56 a share over the past month. Many analysts say the stock is poised for a breakout once its Milan chip hits the market. The company’s financials seem to support the current stock price and potential growth.
Indeed, the novel coronavirus has not slowed down AMD. First quarter revenue was $1.79 billion, up 40% from the year earlier period and the company’s best quarter in nearly 10 years. All business lines saw improvement during the first quarter and net income came in at $162 million, up 900% compared with $16 million of net income in the first quarter of 2019.
These results show that Advanced Micro Devices is continuing to fire on all cylinders. And the company is set to release new hardware throughout the rest of this year, including a new version of its Renoir accelerated processing unit (APU) for desktop computers, as well as Zen 3 CPU and RDNA2 GPU architectures.
If there are any reasons for investors to second-guess the growth potential of AMD stock it is that a lot of future growth has already been baked into the share price, and AMD’s stock has been here before. The stock enjoyed impressive run-ups ahead of the dot-com bubble bursting in 2000 and the 2008 financial crisis only to see the share price come crashing down.
This time looks to be different though as lock down measures are fueling demand for the video games that AMD’s technology enables.
The Bottom Line on AMD Stock
AMD stock has been on an impressive run in recent years and investors who have stuck with the company have been richly rewarded. While competition in the semiconductor microchip business remains fierce, AMD looks capable of competing and thriving.
A steady stream of new products and strong momentum in the console and online gaming sectors, as well as all things related to cloud computing, should keep AMD’s share price on an upward trajectory for the foreseeable future.
Among 34 analysts who cover the stock, there is a current consensus rating of “buy” on Advanced Micro Devices with a high price target of $70 per share.
Joel Baglole has been a business journalist for 20 years. He spent five years as a staff reporter at The Wall Street Journal, and has also written for The Washington Post and Toronto Star newspapers, as well as financial websites such as The Motley Fool and Investopedia. As of this writing, he held shares of MSFT and NVDA.