Competition among computer chip companies is fierce and Advanced Micro Devices (NASDAQ:AMD) is comfortable leading the charge. AMD stock, meanwhile, has a legion of fans who keep the name hovering around full value. Now, it appears accustomed to this lofty assignment in the market.
This company has significant momentum. Observers who would prefer to see the stock priced lower so they can buy on the dip are often frustrated, however.
So, those who are thinking of adding this pick to their portfolios — or increasing their holdings — must watch closely and act on the exact moment they want to press that buy key. There’s plenty of action for them to watch, too, as AMD continues taking on Nvidia (NASDAQ:NVDA) and Intel (NASDAQ:INTC).
A Strong Quarter for AMD Stock
Third quarter for AMD stock delivered good cheer to its backers.
Revenue in the three-month period was $2.8 billion, which was a record for the company. The total was a 56% year-over-year (YOY) increase and 45% more than Q2 revenue.
Additonally, Q3’s net income rose an impressive 225% and totaled at $390 million, compared to $120 million for the quarter in 2019. Likewise, the diluted earnings per share (EPS) was 32 cents, a hefty jump from 13 cents in Q2 and 11 cents in the same period one year ago.
Dr. Lisa Su, president and CEO of the company, attributed the performance to “strong demand for our PC, gaming and data center products.” She also noted:
“We reported our fourth straight quarter with greater than 25 percent year-over-year revenue growth, highlighting our significant customer momentum. We are well positioned to continue delivering best-in-class growth […] .”
Naturally, Su wins high marks from analysts for guiding AMD’s turnaround into a chip-making leader. An example of her results? If Q3 hasn’t convinced you, the company also expects revenue growth in the fourth quarter to be some 41% higher.
Perhaps more importantly, though, the firm’s traditional seasonal drop in the first quarter may not occur next year. According to TipRanks, Su implied this potential performance at a recent analyst conference.
The firm is also progressing to complete its all-stock acquisition of rival chip maker Xilinx (NASDAQ:XLNX), a move that is expected to strengthen AMD’s market position. Writing about the proposed acquisition recently, InvestorPlace contributor Mark Hake compared shares of AMD stock to a nation’s currency.
“The stock has risen so far that it can be the main currency for the deal. The reason is that by issuing up to $30 billion in shares to Xilinx shareholders, it won’t be too dilutive to existing shareholders.”
Hake adds, “That is the luxury you get when your stock is expensive and people expect it will rise further.”
What Analysts Have to Say
Despite all of the positives for the company, though, Advanced Micro Devices’ nose-bleed valuation is tempering how some analysts judge it.
For instance, in that same article noting the company’s projected Q4 revenue growth, Tipranks recently described Wall Street as “cautiously optimistic about AMD stock, with a Moderate Buy analyst consensus based on 13 Buys versus 6 Holds and 1 Sell.”
In this same article, Tipranks also found potential growth fueling more enthusiastic ratings for Nvidia, which it summed up as a “strong buy.”
Indeed, investors who bought shares of AMD at lower prices may be tempted to cash out and pocket some profits. It’s an understandable move, especially if personal circumstances warrant it. But I don’t think that’s how most investors approach their stakes in successful tech companies. Instead, I suspect it is mainly a patient buy-and-hold strategy. And it appears that this stock is a fit for this strategy.
Writing for InvestorPlace on Oct. 27, I termed AMD stock as a buy even at its lofty valuation. This was based on the company’s sterling leadership and how it is thriving in a difficult industry.
Nearly two months later, my opinion is unchanged. This name is set to keep going.
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.