Without a doubt, investors like Advanced Micro Devices (NASDAQ:AMD) stock, commonly known as just AMD, because of its top-notch tech hardware.
On the back of strong demand for artificial intelligence compatible technology, AMD stock ran fast and far in 2023’s first half. However, the stock gets a “B” grade now as it won’t be so easy to maintain that momentum.
AMD is still a solid company with good long-term future prospects. CEO Lisa Su’s leadership helped the company gain market share among chip makers over the past few years.
Investors shouldn’t ignore AMD, but there’s also no urgent need to load up on the shares.
Growth Is Already Priced Into AMD Stock
Clearly, AMD is willing and able to meet the market’s demands for next-generation tech components. The company is committed to advancing AI-compatible hardware projects. Plus, AMD has new and improved solutions for cloud computing and for emulation and prototyping.
However, none of this is a secret on Wall Street. Everybody and his uncle already knows that AMD has powerful chips for AI applications. Thus, AMD’s GAAP trailing 12-month price-to-earnings (P/E) ratio is quite high, at 488.17x.
Consequently, while AMD can run higher in the long term, the near-term growth prospects may be limited.
Citi analyst Christopher Danely, just to provide one expert’s opinion, recently issued a “neutral” rating and an unambitious $120 price target on AMD stock.
Danely expects “downside to estimates driven by the correction in the data center/gaming/embedded markets (84% of C23E sales).”
AMD’s Quarterly Earnings Won’t Be Spectacular
Danely’s commentary is an example of Wall Street’s downbeat near-term expectations for AMD. The company is set to report its second-quarter earnings results in the coming weeks.
Analysts, on average, are calling for AMD to report quarterly earnings of 58 per share.
That would indicate a slight decline from 60 per share in 2023’s first quarter, and a huge fall-off from $1.05 per share in the year-earlier quarter. And by the way, those are all non-GAAP results. Using GAAP standards, AMD actually posted a first-quarter 2023 earnings loss.
In terms of quarterly revenue, AMD reported $5.353 billion (both GAAP and non-GAAP) in Q1 2023, down 9% year over year.
For the second quarter, AMD’s outlook calls for “approximately $5.3 billion, plus or minus $300 million” in revenue. In other words, the company doesn’t anticipate a mind-blowing top-line result.
Don’t Be Too Aggressive With AMD Stock
AMD will undoubtedly continue to develop top-of-the-line technology components, including chips for AI applications. Therefore, long-term investors shouldn’t be afraid to hold a small share position in AMD.
At the same time, investors should have realistic expectations for AMD after a period of strong share-price appreciation. There may be more gains in store, but don’t assume that a moonshot is imminent.
So, with that caveat in mind, AMD stock earns a solid “B” rating and is fine for a moderate-sized portfolio allocation.
On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.
