After a 25% gain in the past month, does Advanced Micro Devices (NASDAQ:AMD) stock have more room to run?
Investors who feel they’ve missed the long-awaited rally in AMD stock should be happy to hear that shares of the Sunnyvale, California-based semiconductor company likely have continued upside, especially after the stock pulled back in recent trading sessions.
With the stock now consolidating at $110, many analysts feel it won’t be long before it retests its 52-week high of $122.49 and could push beyond $125 per share. With its semiconductors in huge demand and an important acquisition finalized, AMD shareholders can look forward to more gains over the near term.
Xilinx Acquisition
Prior to its recent jump higher, AMD stock had been sitting right around $90 a share since August 2020. The main reason for the share price being stuck in neutral was lingering uncertainty related to the company’s $35 billion acquisition of fellow semiconductor company Xilinx (NASDAQ:XLNX).
The deal has won praise from industry observers who say the addition of Xilinx will give AMD advanced capabilities in artificial intelligence and help the company expand into semiconductors made specifically for use in today’s vehicles.
However, the Xilinx acquisition had to run a gauntlet of regulatory approvals around the world, which caused some hesitancy among institutional investors. AMD stock popped after it was revealed in July that regulators for the European Commission and in the United Kingdom had approved the deal, making its completion more certain. While regulators in China still need to weigh in on the acquisition, there have been media reports that authorities in Beijing are likely to bless the merger between AMD and Xilinx, providing further momentum to the stock.
While a smaller semiconductor company, Xilinx has rock-solid fundamentals and great technology to support AMD going forward. In its most recent quarterly earnings, Xilinx reported revenue of $879 million, up 21% from a year ago and near record levels. Xilinx also reported free cash flow of $373 million, up 42% from the same period of 2020. Xilinx has now reported $1.19 billion in free cash flow over the last 12 months.
Once the acquisition is finalized by the end of this year, Xilinx should help strengthen AMD financially and in terms of the products it can offer customers.
Strong Performance and Outlook
Aside from the pending acquisition of Xilinx, AMD continues to post strong financials of its own and attract bullish comments from respected Wall Street analysts. Bank of America recently designated the company a “top catchup candidate” and placed a “buy” rating and a $135 price target on AMD stock. In its analysis, Bank of America noted that AMD is currently trading at a big discount to its competitors, which include Nvidia (NASDAQ:NVDA) and Intel (NASDAQ:INTC). AMD has “the strongest upward [earnings-per-share] revisions among chipmakers and a clear path to doubling EPS to about $5 per share,” said Bank of America.
In its just issued second quarter earnings, AMD reported revenue of $3.85 billion, up 99% from a year ago and ahead of the 93% revenue increase the company reported in the first quarter of this year. The company also reported earnings per share (EPS) of 58 cents, above analysts expectations of 47 cents. And, AMD raised its forward guidance, saying that it now expects revenue to grow 60% this year compared to 2020, up from previous guidance of 50% growth. AMD stock jumped 7% immediately after its latest quarterly results were announced.
Buy AMD Stock
The future looks very bright for AMD and shareholders should continue to benefit. The company is gaining market share with its semiconductors and microchips in important areas. Electric car maker Tesla (NASDAQ:TSLA) recently chose AMD hardware to power the infotainment systems in its Model S and Model X vehicles. And AMD says half of the world’s supercomputers are powered by its central processing units (CPUs).
More and more analysts and pundits are pointing investors towards AMD stock, claiming its upside potential as a leading semiconductor designer should not be underestimated. While the median price target on AMD stock is currently $110, the majority of those analysts ratings were made before the company’s recent second quarter earnings and before approval of the Xilinx merger became more certain. In coming weeks, more analysts can be counted on to follow Bank of America’s lead and revise up their ratings and price targets on AMD stock.
Given all that it has going for it right now, AMD stock is a buy.
On the date of publication, Joel Baglole held long positions in AMD and NVDA. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
