Investors in chipmaker Advanced Micro Devices (NASDAQ:AMD) stock have seen strong returns in the past 12 months.
AMD stock is up 44%, and in late November hit a record high of $164.46. By comparison, the PHLX Semiconductor Sector Index returned around 30% in the past 52 weeks.
However, since that peak, AMD shares have come under pressure and lost about 20%, now trading around $132. The chip darling’s 52-week range has been $72.50 – $164.46, and the market capitalization (cap) stands at $160.5 billion.
AMD is well-known for its central processing units (CPUs) and graphics processing units (GPUs), competing with peers Intel (NASDAQ:INTC) and Nvidia (NASDAQ:NVDA). Its chips power a range of electronics items.
Given the recent decline in price, AMD shareholders now wonder what might be in stock for the chip designer.
Therefore, today’s article will look at what to expect from Advanced Micro Devices in the new year.
How Q3 Earnings Came
AMD announced its Q3 financials on Oct. 26. Total net revenue increased by 54% year-over-year (YOY) and hit $4.31 billion, beating the group’s previous outlook.
Non-GAAP net income was $893 million for the third quarter compared to $501 million a year ago. As a result, adjusted EPS was 73 cents.
“AMD had another record quarter as revenue grew 54% and operating income doubled year-over-year,” CEO Dr. Lisa Su said. “Third Gen EPYC processor shipments ramped significantly in the quarter as our data center sales more than doubled year-over-year.”
In Q4, management expects revenue to be approximately $4.5 billion, plus or minus $100 million, an increase of approximately 39% YOY. Wall Street was pleased with these robust Q3 metrics as well as the outlook.
This will be the year when Advanced Micro Devices completes the Xilinx (NASDAQ:XLNX) acquisition.
InvestorPlace.com contributor Vandita Jadeja has recently written in-depth about how this transaction could help AMD create further shareholder value in the coming quarters.
Prior to the release of the quarterly results, AMD stock was around $123. Then, in a matter of weeks, it hit a record high shy of $165.
Now it is around $132. The company will next report Q4 earnings in late January.
Adding AMD Stock To Portfolios
Among 40 analysts polled, AMD stock has a “buy” rating. Also, the consensus of 34 analysts for the 12-month median price target stands at $142.50, implying an upside potential of over 7.5% from current levels.
The 12-month price estimates currently range between $80 and $180.
Advanced Micro Devices shares trade at 42.2 times forward price-to-earnings (P/E) and 11.4x times trailing sales. These valuation metrics imply that despite the decline in price, AMD stock is not necessarily cheap.
By comparison, these numbers for Intel are 13.9x and 2.6x, and the comparable metrics for Nvidia stand at 58.8x and 31.5x.
Long-term investors who are not concerned about short-term choppiness in AMD stock could consider investing around $125. Their price target should be analysts’ estimate of $142.50.
Others who are interested in Advanced Micro Device stock but want to diversify some of the risks away could buy an exchange-traded fund (ETF) that holds AMD as well.
Examples include the Invesco PHLX Semiconductor ETF (NASDAQ:SOXQ), the VanEck Video Gaming and eSports ETF (NASDAQ:ESPO), the Viridi Cleaner Energy Crypto Mining & Semiconductor ETF (NYSE:RIGZ), the ProShares Nanotechnology ETF (NYSEARCA:TINY) or the Esoterica NextG Economy ETF (BATS:WUGI).
Cash-Secured Puts on AMD Stock
Finally, those readers who are experienced in options could also consider selling cash-secured puts. This strategy may be appropriate if you are slightly bullish or neutral on AMD stock at this time.
Selling cash-secured put options generates income as the seller receives a premium. Recently, Advanced Micro Device stock has been trading around $132.
If you sold the $120 strike put that expires on Feb. 18, you could collect about $4.90 in premium. Therefore, the maximum return for the seller on the day of expiry would be $490, excluding trading commissions and costs, if the option expires worthless.
If the put option is in the money (meaning AMD stock is lower than the strike price of $120) any time before or at expiration on Feb. 18, this put option can be assigned.
The seller would then be obligated to buy 100 shares of Advanced Micro Devices stock at the put option strike price of $120 for a total of $12,000 per contract. In that case, the trader ends up owning AMD stock for $120 per share, about 9% below the current price.
If the put seller gets assigned shares, the maximum risk is similar to that of stock ownership (the stock could theoretically fall to zero) but partially offset by the premium received ($490 for 100 shares).
The Bottom Line
Advanced Micro Devices has become one of the most important chip names. However, along with many other hot tech names, AMD stock is currently under pressure.
As Wall Street gets ready to hear quarterly metrics from the chipmaker, shares will likely stay volatile in the rest of the month.
Yet, if you are a long-term investor whose portfolio can handle short-term choppiness, then any further decline in AMD stock would mean an opportunity to buy into this growth name.
On the date of publication, Tezcan Gecgil did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Tezcan Gecgil has worked in investment management for over two decades in the U.S. and U.K. In addition to formal higher education in the field, she has also completed all 3 levels of the Chartered Market Technician (CMT) examination. Her passion is for options trading based on technical analysis of fundamentally strong companies. She especially enjoys setting up weekly covered calls for income generation.