Advanced Micro Devices (NASDAQ:AMD) stock has been trending higher since the fall, but in recent weeks, AMD stock has really gone parabolic, hitting new all-time highs this month. It could result in panic buying or a bearish reaction, depending on the investor.
Admittedly, there is an event next week that could cause the stock to reverse course. There is also a macro-related factor at play. This could also turn on a dime. Nevertheless, does this mean it’s time to exit/avoid AMD? Not exactly. While a dip in the immediate term may be unavoidable, plenty of runway remains, make no mistake.
AMD Stock and a Possible Post-Earnings Pullback
As hinted above, something big is coming up that may drive a wild swing in the price of Advanced Micro Devices shares. That would be the company’s next quarterly earnings release, scheduled to occur post-market on Jan. 30.
Over the past three months, AMD stock has experienced a strong rally for two reasons. First, the market’s rising optimism about lower interest rates in 2024 has provided a massive lift for growth stocks. Lower interest rates may help to boost demand, improving operating performance. Low rates of course also are a positive for growth stock valuations.
Second, during this time frame, following AMD’s December unveiling of its initial AI-compatible chip products, investors have gone from appreciative to extremely appreciative of the company’s AI potential. The market has been betting big that sales of AI chips this year handily exceed CEO Lisa Su’s conservative $2 billion forecast.
Sure, guidance updates provided in next week’s earnings release could spark an unexpected continued rally. However, I would instead expect something else. Even if the Advanced Micro Devices beats on earnings, and management provides upward revisions to outlook, many may decide to take profit after the release, resulting in a post-earnings sell-off.
A Growth Bonanza Awaits
Now, while I believe AMD stock could pull back sharply after earnings, if it happens, I don’t expect it to result in a full-on coughing back of its AI-related gains. However, a moderate decline is very possible. This is especially the case if the market’s continued optimism for lower interest rates dissipates, causing a correction among growth stocks.
That said, I wouldn’t jump to the conclusion that the AI-powered bull run for AMD is over, and that it’s time to sell/stay away.Some analysts, like Northland Capital’s Gus Richard may make headlines by saying AMD’s AI upside is fully priced-in.
But as I recently argued, the supposed “AI mania” driving price action for the stock today is supported by substance. The company’s AI revenue growth could come in by as much as four times above Su’s aforementioned forecast, and that’s only from sales of AMD’s Instinct MI300 accelerators.
Beyond AI chips for data centers, a massive market for AI PC chips may also emerge. These tailwinds could produce a growth bonanza for Advanced Micro Devices, on par with the massive growth that the “first mover” in the AI chip space has experienced since last year.
The Takeaway: Feel Free to Hang On
Per the top end of sell-side forecasts, AMD’s earnings could more than double from 2023 levels by 2025. After this, the AI growth trend could continue to have a dramatic impact on the company’s fiscal performance.
According to Statista, the AI chip market is expected to generate a total of $67 billion in revenue by 2024. By decade’s end, however, this growing industry could generate revenues in the hundreds of billions annually.
AMD may grab just a small share of the market, yet still experience a manifold increase in its top and bottom lines. While the stock’s current valuation (63.4 times forward earnings) takes some of this into account, it’s not fully priced-in.
With an identifiable path to new highs becoming clearer, irrespective of how AMD stock performs post-earnings, feel free to hang onto or add to a position.
AMD stock earns an A rating in Portfolio Grader.
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.
