To say that semiconductor company Advanced Micro Devices (NASDAQ:AMD) is exceling in a very demanding area of the tech world borders on understatement. But it’s accurate. One result of this success is shares of AMD stock are highly valued. Yes, forgive me, that’s another understatement.
All this success does beg a question, though. Should investors avoid AMD stock and its valuation? The answer is no, not at all.
Technology stocks in general, and AMD stock in particular, have settled in a different realm in many ways. One way involves toting numbers that would burden other companies. It would be like trudging through mud while the high-flying tech stock enjoys the sidewalk.
Put another way, Advanced Micro Devices has acclimated to a high-altitude environment. Sure, it is more difficult to survive at these levels, but those who can adapt can thrive in the more precarious setting.
And AMD certainly resides in the upper reaches of valuation.
The company’s price-earning ratio recently was a just a little shy of 160 – 159.33, to be exact. This is a point where an investor may be sorely tempted to sell and book some profit. I wouldn’t criticize that investor, especially if their portfolio was tech-heavy and some realignment was needed to boost diversification and thereby dial down risk.
Recently in InvestorPlace, AMD was fourth on a list of Top 10 tech stocks to buy before the election. This inclusion acknowledges the P/E statistic as well as the company’s strengths. And, as colleague Alex Sirois wrote, “2021 looks bright” for AMD.
A Closer Look at AMD Stock
Advanced Micro Devices is scheduled to reveal its third-quarter earnings report today after the market closes, and expectations are high leading to the announcement.
Analysts were forecasting adjusted earnings of 35 cents to 37 cents per share. This tops the 31 cents per share that was forecast as the quarter was beginning, according to Marketwatch. In addition, the company’s performance is expected to come at the expense of longtime rival Intel (NASDAQ:INTC).
Shares of AMD stock are trading around $80. This price is on the higher side, yes, but somewhat below the 52-week-high of $94.28. And the price is much better than the 52-week bottom of $31.34 per share. Here’s an example of AMD’s strength.
The stock ventured below $40 briefly earlier this year during the sell-off triggered by the novel coronavirus and rebounded nicely.
In general, 2020 has been a good year for AMD stock. So far this year, the share price has gained about 70%. Looking back over 12 months, that number increases to about 120%. And over a five-year span, the rise totals some 4,200%.
Obviously, the trip higher has not been a straight line. But, with figures like these, it’s no wonder some investors would be tempted to take the cash.
The Xilinx Deal
Advanced Micro Devices is said to be in “advanced negotiations” to acquire Xilinx (NASDAQ:XLNX), another tech company, for about $30 billion.
On Oct. 9, Bloomberg reported the takeover by AMD would be more bad news for Intel. The deal would “give AMD more of the pieces needed to break Intel’s stranglehold on the profitable market for data-center computer components,” according to the report.
Products by Xilinx have applications in artificial intelligence and telecommunications that would compliment AMD’s products and yield components for customers to buy.
Xilinx is no weak sister in the industry. The company recently reported second-quarter results surpassing expectations. The EPS of 82 cents for the period topped estimates of 77 cents. Helping fuel the numbers, the company said, was its data-center business as well as aerospace and defense-industry activity.
“We are pleased with our fiscal second quarter performance, which came in above the mid-point of guidance,” CEP Victor Peng said.
The Bottom Line
Advanced Micro Devices is a California-based semiconductor manufacturer that has consistently posted strong performances in a very competitive industry. The company has top-quality leadership and it is relentlessly innovative. This commitment to innovation has resulted in advancements in products that surpass its rivals.
Long-term investors, meanwhile, have seen the value of AMD stock rise quite impressively.
Tech plays often are not cheap purchases. That said, AMD stock is a buy for investors seeking to add more high-tech exposure to their buy-and-hold portfolios.
On the date of publication, Larry Sullivan did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.
Larry Sullivan is a veteran journalist in Florida who has covered banking and finance for several years. He is a former investing editor at U.S. News & World Report in Washington D.C.