At this point, hyping up Advanced Micro Devices (NASDAQ:AMD) stock seems pointless.
Many market commenters and analysts genuinely doubt whether there is an end in sight to the chipmaker’s growth story. Fortunately, for those long on AMD stock, it doesn’t look like sales are slowing down in the slightest.
Short interest for the stock is also at an all-time low, and even the most ardent bears have surrendered.
The only thing working against the stock is the share price. AMD stock still trades at 88x times forward price-earnings ratio, a very rich valuation despite a recent pullback that made shares somewhat more attractive.
Ultimately, it’s a case of when is the best time to buy into the stock since fundamental strength will never be a problem with AMD.
A recent dip into the $70s must be leaving investors salivating, but with the stock still trading more or less in line with consensus price targets, I would wait for shares to shed some more value before adding more to your portfolio. Regardless, you can’t go wrong with the company, considering its history and solid track record of returns.
AMD Stock Tapered Off With the Broader Markets
Work-from-home stocks recently lost a bit of steam after an extended bull run from mid-March onwards. AMD was among the casualties, but the good thing is the sell-off prompted fresh interest in the semiconductor company. The negative market sentiment had little to do with AMD, which is going strong despite bearish calls of an eventual slowdown in sales.
Instead, it’s because of three important factors.
First, Republicans and Democrats struggle to come to terms with the provisions in the next fiscal stimulus bill. Markets hate uncertainty, and the sooner the bill is passed, the better.
Second, the Trump administration banned all TikTok and WeChat downloads in the U.S., while Oracle (NYSE:ORCL) makes a play for TikTok parent ByteDance. U.S.-China tensions tend to have an anemic effect on the markets, and they certainly did so here.
Last, we are seeing Covid-19 infections spike again, especially in Europe. Considering we are still a few months shy of a commercial vaccine, this is pretty bad news since it could lead to fresh lockdown restrictions and undo a lot of the progress made since reopenings.
All Systems Go!
While external factors have certainly helped push the stock down, AMD itself is progressing at a very healthy clip. Data from the first half of September shows Ryzen 3000-series SKUs are still selling out, despite the imminent launch of its next-gen Zen 3-based CPUs.
You would have thought that the demand for these chips would have reduced. On the contrary, it seems that the 3000-series SKUs will continue to ship along with the 4000-series. The demand is driven by work-from-home requirements, which should keep inventory moving for a few more quarters, at least.
However, even beyond that, new console sales, data center growth, and the soon-to-be-released chips will continue to increase AMD’s market share compared to Intel (NASDAQ:INTC).
This fall will see the renewal of one of the oldest rivalries in tech – Sony’s (NYSE:SNE) PlayStation versus Microsoft’s (NASDAQ:MSFT) Xbox. Sony’s PlayStation 5 will launch on Nov. 12 ahead of the 2020 holiday season. Meanwhile, Microsoft will release the newest version of the Xbox on Nov. 10.
AMD doesn’t have any horse in this race, as it supplies chips to both the companies. The only thing AMD will be hoping for is that Xbox manages to sell more units this go-around.
Since 2014, the company has not managed to sell over 10 million units. And in 2019, there were just 5 million units sold. Microsoft is hoping to boost sales through offering financing plans at $25 and $35 per month for the Xbox Series S and Xbox Series X, which will respectively retail for $299 and $499.
Regardless, the launch of the two consoles will provide a significant tailwind for AMD moving forward. And while work-from-home trends could change moving forward, console sales will remain strong.
Short Interest Is Declining
The last month wasn’t a good one for AMD bears. Short interest dipped to a 10-year low as market sentiment once again turned bullish. Meanwhile, Intel and Nvidia (NASDAQ:NVDA) are seeing a build-up of short interest. So, the decrease in short interest is not a sector-wide trend; instead, it’s down to AMD’s growth prospects.
Usually, a stock that is up almost 73% year to date will have a lot of short interest since people would be betting on some degree of the eventual market correction. However, that doesn’t look like the case here.
My Final Word on AMD Stock
AMD stock is an excellent investment and has been one for many years. There is nothing to suggest the company is in danger of falling by the wayside anytime soon. But as I said, shares are a bit too expensive for my taste at the moment.
That’s why I would wait for them to cool off a bit before adding more stock to my portfolio.
On the date of publication, Faizan Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Faizan Farooque is a contributing author for InvestorPlace.com and numerous other financial sites. He has several years of experience analyzing the stock market and was a former data journalist at S&P Global Market Intelligence. His passion is to help the average investor make more informed decisions regarding their portfolio.