Over the past year, we’ve seen robust performance from Advanced Micro Devices (NASDAQ:AMD). While AMD stock wasn’t immune to the market-wide volatility in the first quarter of 2020, it has proven its resilience in the months since.
So many investors have been skeptical of this rally. Not just in AMD, but in the market as a whole. That’s understandable, as there are still real issues under the surface. However, for companies like Advanced Micro Devices, the novel coronavirus drastically accelerated its business.
Whether or not it’s fair is irrelevant. The simple truth is that once the pandemic hit, AMD stock snapped back violently as Wall Street realized demand was going through the roof — and still is.
Strong Growth Persists
In 2020, AMD grew its revenue 45% to $9.76 billion, while earnings of $1.29 a share doubled from the prior year. It was a great year for AMD, but the pull-forward in these figures is even more staggering.
Use this for some perspective: In July 2020, analysts were expecting 2021 sales and earnings of $8.4 billion and $1.05 per share, respectively. Again, that was for fiscal 2021. For the full-year 2020, AMD beat those results by 16.2% and 22.9%, respectively.
The above statement is an easy one to gloss over without it really hitting home. But it’s incredible that this company easily beat this year’s expectations last year. That’s … not supposed to happen. Even better? Momentum in its businesses remains strong.
Analysts expect another year of robust growth, with revenue forecast to climb 38.4% to $13.5 billion. Further, consensus expectations call for more than 50% earnings growth to almost $2 per share.
Are these estimates too conservative? It’s quite possible based on the past several quarters.
Leadership and Past Performance
Why is the company in the position it’s in? Largely thanks to its excellent management team. Lead by CEO Lisa Su, AMD has seen a robust turnaround in seemingly every aspect over the last few years.
Revenue is up a staggering amount. So are assets, profits and cash flow. Debt has been reduced in the prior years too, particularly “bad debt.”
In other words, AMD has drastically improved its balance sheet. It cut down long-term debt and boosted its assets to the point where it can now use “good debt” to acquire quality assets via M&A and invest its businesses.
Check it out and look at the drastic improvement we’ve seen in 2020 (emphasized in bold):
|Revenue||Net Income||FCF||LT Debt|
Not included in the table are total assets and total liabilities. In 2017, those figures stood at $3.54 billion and $2.93 billion, respectively. However, in 2020 the difference widened considerably.
Total assets have climbed 153% to $8.96 billion, while total liabilities have grown just 6.7% to $3.12 billion.
Margins have scorched higher and so has free cash flow, as AMD is clearing flexing its operating leverage and its potential moving forward.
AMD Stock Chart and Semiconductor Demand
For those unaware, there is a shortage in chips right now.
The situation is two-fold. On the one hand, companies are missing out on sales because they do not have the supply to meet demand. For instance, automakers could face a $61 billion dip in sales this year because they don’t have the semiconductors they need.
For the chipmakers, they too face some headwinds, as maxed out production means they cannot meet further demand. However, at least in the chipmakers’ position, they can gain pricing power as demand outstrips supply.
While this has less to do with Advanced Micro Devices and more to do with others, it still bodes well for AMD stock that its peers are running hot. Further, AMD is facing shortages of its own too, primarily in gaming and PCs.
In regards to the stock price, this one has a peculiar pattern for those interested in the technicals.
Look at the way AMD stock tends to consolidate before making a sharp move to the upside. In the first half of 2020, it consolidated below downtrend resistance (blue line) before erupting higher. Then it stayed below $87 for a few months before another push higher.
In other words, AMD tends to lull investors to sleep before a sharp move higher. With any luck, this one will push up through the current highs and clear $100 later this year.
On the date of publication, Matt McCall did not have (either directly or indirectly) any positions in the securities mentioned in this article.
The InvestorPlace Research Staff member primarily responsible for this article held a long position in AMD.
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