As the calendar turned to September, shares of Advanced Micro Devices (NASDAQ:AMD) were looking overvalued. The last time I wrote about AMD stock was right before the company reported its second-quarter earnings. At the time, I felt that the stock was a buy despite that fact that it was up over 50% for the year at that time.
Since the earnings report, AMD stock has been on a tear. In fact, on Sep. 1, 2020, shares closed above $92. But since then, the stock has been part of the selloff that’s overtaking the tech sector. Shares of AMD are trading around $81 as of this writing.
Yes, it’s accurate to say that markets move up and markets move down. Some of this is just normal profit taking as investors start to square their portfolios for the end of the year. But in the case of AMD stock, this may be just what the doctor ordered.
It’s Lonely at the Top
In some ways, the surge that AMD made was not surprising. In July the company beat on both the top and bottom lines. This was four straight quarters of better year-over-year performance. And the company offered an optimistic outlook for the current quarter that had to get analysts attention.
The financials were strong in other ways as well. In terms of free cash flow (FCF). For all of 2019, AMD posted $276 million. In the last quarter alone, the company generated $152 million of FCF, and was FCF positive for the quarter.
However, what comes up, often comes down. And in this case, it may not be for any specific reason. For example, InvestorPlace contributor Dana Blankenhorn loves AMD as a company. But as Blankenhorn wrote recently (when the stock was still at $88), you can love the company and what it’s doing and still say it’s time for some profit taking. And that appears to be exactly what investors are doing.
All the Catalysts Are Still in Place
AMD stock is not dropping because of terrible news. When a sector starts to sell off, all the stocks in that sector tend to drop somewhat in unison. And that’s really what seems to be happening to AMD right now. Investors are simply using the broad selloff as an opportunity to lock in some of the profits that they’ve made.
And at $80 per share, the stock is still up over 85% for the year. It may still have further to fall.
However, there’s nothing that’s been reported that should make investors not believe the company is capable of reaching the $2.55 billion in revenue that it projected for the current quarter. The company should be realizing significant revenue for their graphic processing units (GPUs) in the quarter as both Sony (NYSE:SNE) and Microsoft (NASDAQ:MSFT) get ready to deliver the next generation of their PlayStation and Xbox gaming consoles in time for the holidays.
Is AMD Stock Headed for $100?
If you believe some analysts, then $100 is a reasonable price target for AMD stock. In the last month, analysts from Piper Sandler and Cowen have raised their price target on AMD to $100. However, if you put credence in such things, Northland Securities downgraded the stock from “outperform” to “market perform” with an $80 price target.
But that price target is a 12-month price target. And as of a week ago, the stock was within 10% of that mark. At around $80, the stock looks to have more room to run.
Brad Moon recently wrote about a pattern with AMD stock. Moon noticed that the stock tends to surge around earnings season, and then trades in a fairly tight range afterwards. For the stock to run north of $90 after already jumping to over $84 per share was a bit unusual.
It’s okay to pay tomorrow’s stock price today if you have reasonable confidence that the stock will grow into that stock price. That certainly seems to be the case with AMD stock.
But this selloff, which may turn into a full-blown correction, can’t be entirely unwelcome. And if you’re bullish on AMD, it turns into a great opportunity to buy the stock at a much more attractive price.
On the date of publication Chris Markoch did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Chris Markoch is a freelance financial copywriter who has been covering the market for over five years. He has been writing for Investor Place since 2019.
