For investors in Advanced Micro Devices (NASDAQ:AMD), the temptation to take profits is understandable. Anyone who bought AMD stock early in 2020 can easily declare himself/herself a winner and cash out.
After all, AMD is a stock that more than doubled from mid-March to December. Skeptics might wonder how much further AMD stock can possibly go after a run like that.
As we’ll discover, the concerns over valuation are understandable. An argument can be made in favor of taking some chips off the table when it comes to AMD stock.
On the other hand, it’s also possible to assess the company’s progress and choose to hold on to one’s AMD shares. Perhaps the bull run can continue into 2021. So, let’s home in on the AMD stock price and consider whether the stock’s valuation is a deal breaker.
A Closer Look at AMD Stock
At its lowest point in March of 2020, AMD stock bottomed out at $36.75. Even a tech stock like AMD wasn’t impervious to the Covid-19 crisis at that time.
Yet, by the middle of April, AMD stock had already returned to its pre-pandemic price. The swift recovery was likely due to the market’s belief that the technology sector could thrive during lockdowns.
AMD stock took another big leg up during the summer of 2020. During that time, the stock quickly rocketed to the $85 level. Then the bulls took a much-needed breather for a couple of months.
In December, the AMD stock bulls came back and began to push the share price beyond the $90 level. In fact, on Dec. 23, AMD shares hovered near $92 or $93. At that time, however, the trailing 12-month price-to-earnings ratio reached 125.
Meanwhile, the trailing 12-month price-to-earnings ratio of rival Intel’s (NASDAQ:INTC) stock was around 9. Therefore, value-focused investors will need to be convinced that AMD stock is worth its price tag.
Undeniable Revenue Growth
If any AMD shareholders have been concerned about the stock’s valuation, a glance at the company’s fiscal stats should help to put them at ease.
Suffice it to say that Advanced Micro Devices’ third quarter was an absolute blockbuster. Even the most optimistic commentators might not have expected the quarterly results that the company posted.
Here are the bullet points for Advanced Micro Devices’ third quarter:
- $2.8 billion in revenues, up 56% year-over-year and 45% quarter-over-quarter
- Revenues from the computing and graphics segment totaled $1.67 billion, up 31% year-over-year and 22% quarter-over-quarter
- Net income was $390 million, a huge improvement over the $120 million posted a year ago and $157 million recorded in the prior quarter
- Diluted earnings per share came to 32 cents, compared to 11 cents from a year ago and 13 cents from the prior quarter
Strong Outlook
Plus, it’s also worth mentioning that Advanced Micro Devices ended the quarter with a rock-solid position in cash, cash equivalents and short-term investments totaling $1.77 billion.
So, it’s evident that the company was able to generate revenues during the third quarter. But what will the fourth quarter, and year as a whole, look like for Advanced Micro Devices?
The fourth quarter of 2020 shouldn’t be problematic at all. Advanced Micro Devices is modeling revenues of approximately $3 billion, plus or minus $100 million, for that time frame.
That would indicate an increase of roughly 41% on a year-over-year basis, as well as a 7% quarter-over-quarter improvement.
All in all, Advanced Micro Devices expects 41% revenue growth for 2020 compared to the company’s revenues from 2019. That’s even better than the company’s prior guidance of 32% year-over-year revenue growth.
The Bottom Line
Armed with numbers like those, the AMD stock bulls have an airtight case and can easily defend their decision to hold the shares.
You’re certainly welcome to take profits in AMD stock if you have them. Nevertheless, you also have the right to stay in the trade as the company’s clearly on the right track, fiscally speaking.
On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article.
