Advanced Micro Devices (NASDAQ:AMD) shareholders have enjoyed two years of unprecedented growth in the value of their investment. AMD stock put on a clinic in 2019 and through most of 2020.
With annual gains in excess of 150% and 96%, respectively, AMD has been one of the hottest tech stocks. However, since the start of December, that growth has plateaued. At this point, AMD stock has lost ground slightly in 2021. Even after a Q4 earnings beat in January, AMD slumped. Is the mediocre performance over the past two months a warning?
For some, the performance of AMD over the past two months has raised the possibility of selling their shares. For others, it’s an opportunity.
A Big Q4 Earnings Beat
You would think that the market would have reacted favorably to AMD’s fourth quarter earnings. On Jan. 26, the company reported revenue of $3.24 billion, up 53% year over year. Adjusted earnings per share for the quarter were 52 cents. Both beat Wall Street estimates, which were $3.03 billion and 47 cents, respectively. AMD said its business of selling embedded chips for servers and custom chips for game consoles was up 176% YoY to $1.28 billion.
In addition, the company provided revenue guidance for Q1 of between $3.1 billion and $3.3 billion, and said it expects 2021 revenue to grow by 37%.
Despite the earnings beat and optimistic revenue projections, AMD stock dropped over 6%.
AMD’s New PC and Laptop Processors
In 2020, Advanced Micro Devices continued its assault on the desktop PC market with Ryzen 5000 series processors. They were so popular, they quickly became difficult to find.
In January, I wrote that AMD was a company to watch at the 2021 Consumer Electronics Show. It didn’t disappoint. New Rzyen 5000-series laptop processors were one of the most talked-about releases at CES 2021. AMD announced hundreds of new laptops equipped with Ryzen chips are coming this year. Many of the hottest new gaming laptops unveiled at CES 2021 feature the powerful new Ryzen chips.
In other words, after continuing to eat into the desktop PC market in 2020, 2021 is a year where AMD is positioned to win greater market share in the laptop market. This, at a time when PC sales have had their greatest increase in a decade, driven largely by laptop demand.
AMD Gets a Downgrade
However, it hasn’t been all sunshine and rainbows for AMD stock lately. Less than two weeks before Advanced Micro Devices reported its Q4 earnings, AMD stock got a downgrade. BMO Capital Markets analyst Ambrish Srivastava downgraded AMD to “underperform” from “market perform.” He also lowered his price target to $75 from $80. His reasoning: “AMD has done a tremendous job under its CEO, and valuation reflects the near flawless execution under her watch … However, we do think a large part of the rich valuation is also attributable to how poorly Intel has executed.”
Srivastava is concerned that a new CEO — the third since 2018 — will result in AMD’s processor rival getting its act together and regaining lost ground.
That’s a valid concern, but AMD is hardly going to sit still. The battle for PC processor market share may indeed become more competitive, but AMD has real momentum and its products are impressive on their own merit — not just because the competition has stumbled.
Bottom Line on AMD Stock
There are two camps when it comes to AMD stock. Among investment analysts it really comes down to a wait and see attitude, and buying now while the shares have stalled.
The analysts tracked by CNN Business have AMD stock rated as a consensus “Buy.” However, 12 of the 34 rate it as a “Hold.” There’s a clear division there. That being said, their median 12-month price target of $110 has 20% upside. That’s not the kind of growth we’ve seen from AMD shares over the past two years, but it’s still solid.
If you’re interested in adding Advanced Micro Devices to your portfolio, now seems like an opportunity. Shares remain off their December 2020 high and the new Ryzen chips are just starting to hit the market. It’s not without risk — as pointed out in the BMO Capital Markets downgrade — and we’re unlikely to see a return of 2019’s triple-digit gains, but AMD stock remains well-positioned for continued, long-term growth.
On the date of publication, Louis Navellier had a long position in AMD. Louis Navellier did not have (either directly or indirectly) any other positions in the securities mentioned in this article. InvestorPlace Research Staff member primarily responsible for this article did not hold (either directly or indirectly) any positions in the securities mentioned in this article.
Louis Navellier had an unconventional start, as a grad student who accidentally built a market-beating stock system — with returns rivaling even Warren Buffett. In his latest feat, Louis discovered the “Master Key” to profiting from the biggest tech revolution of this (or any) generation. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.