Among the companies that have shrugged off the calamities of 2020, few can touch the performance of Advanced Micros Devices (NASDAQ:AMD). AMD stock has posted 58% growth so far.
This year has seen the novel coronavirus pandemic and an oil price war. In addition, there has been a deteriorating relationship with China and civil unrest in American cities.
Adding to the challenges, the U.S. is facing the highest unemployment rate since the Great Depression. Every week, new bankruptcies are in the headlines.
Last week, AMD reported its second-quarter earnings. The company not only blew past Wall Street’s revenue estimates for the quarter, it raised its 2020 revenue outlook.
With shares now trading over $77, AMD stock has never been this expensive, but when a company keeps outperforming so relentlessly? At least one investment analyst thinks shares could hit $120 over the next 12 months.
Q2 Revenue and AMD Stock
On July 28, Advanced Micro Devices reported its second-quarter earnings. Revenue of $1.93 billion was up 26% year-over-year. That handily beat the $1.86 billion that had been expected.
AMD was clearly feeling the effect of the pandemic during the quarter but in a good way. Working from home and a surge in gaming popularity drove up laptop sales, just as the company’s powerful new Ryzen mobile processors started to make their way into the machines. As a result, AMD’s Computing and Graphics segment revenue hit $1.37 billion for Q2 — up 45% YOY.
AMD has no concern that PC sales are going to drop in the second half of the year. The company raised its revenue outlook for 2020, which had previously been projected to hit 15%, saying, “AMD now expects 2020 revenue to grow by approximately 32 percent compared to 2019 driven by strength in PC, gaming and data center products.”
Adjusted earnings of 13 cents per share were lower than the 16 cents Wall Street had been looking for, but AMD shares surged. The stock closed up 11.6% after those Q2 earnings were released.
Intel Stumbles, Game Consoles on Track
AMD’s prospects for 2020 were given a boost by the competition. Two weeks ago, Intel (NASDAQ:INTC) announced that its 7nm processors were once again delayed. The situation was dire enough that Intel suggested it may have to turn to third party chip fabricators in order to get back on track. That debacle led to the ouster of Intel’s chief engineering officer.
Intel stock is down 21% since that news broke, but any delay for Intel is good news for Advanced Micro Devices.
In addition, on AMD’s earnings call, CEO Lisa Su confirmed two of the company’s high profile product launches for 2020 are still on schedule. AMD is supplying the custom processors that will power the hotly anticipated next-generation video game consoles from Microsoft (NASDAQ:MSFT) and Sony (NYSE:SNE).
Demand for the new consoles is expected to be high when they launch this fall. With the boost gaming has seen from the coronavirus pandemic, Sony reportedly doubled its initial Playstation 5 order. Su told CNBC that her company expects the holiday launches of the Playstation 5 and Xbox Series X to drive strong second-half growth in semi-custom chips.
Bottom Line on AMD Stock
At this point, many analysts are taking a cautious approach to AMD stock. That’s understandable, given the macro challenges facing the global PC and game console markets. It’s possible that the pent-up demand for laptops has now been satisfied. A bad recession could hit consumer spending, cutting demand for both PCs and game consoles. A wait-and-see approach makes sense in that case.
However, AMD seems confident the demand is there. And at least some analysts think there’s plenty of upside ahead for AMD shares. For example, last week Rosenblatt Securities analyst Hans Mosesmann — who has had AMD stock rated as a buy — raised his 12-month price target to $120.
Given AMD’s performance through the worst that 2020 has dished out and the big releases yet to come before the year is out, that buy rating on AMD seems a low-risk bet at this point.
As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.