Can AMD’s Stock Outperform Peers Once Again in 2017?
AMD’s stock performance versus peers
In this series, we’ve discussed how Advanced Micro Devices (AMD) is set to pose strong competition to Intel (INTC) and Nvidia (NVDA) in the high-end market. In fact, AMD has improved its balance sheet and gotten some flexibility over future investments.
After growing over 295% in calendar 2016, AMD’s stock rose another 23% from January 2, 2017, to date (February 27), reaching its nine-year high of $14.32. In the meantime, rivals Intel and Nvidia’s stock remained unchanged, with several ups and downs. Nvidia’s stock fell 9% and Intel’s stock fell 1.2% on February 23, 2017, after AMD announced that Ryzen would hit the markets on March 2, 2017.
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Even though AMD reported better stock performance than Intel and Nvidia, Wall Street analysts have one “hold” recommendation for AMD and two “buy” recommendations. This is because AMD is not as fundamentally strong as its two rivals.
AMD has an average price target of $11.5, which it crossed in early February 2017. The stock is now heading toward its bullish target of $16.5, which it may achieve if Ryzen proves to be a success and helps the company gain market share from Intel.
Contradicting views: Rosenblatt Securities
Rosenblatt Securities analyst Hans Mosesmann is positive about AMD and Nvidia but negative about Intel. He believes that the two former companies are well placed to tap into the future growth opportunities of artificial intelligence, cloud computing, compute-centric GPUs (graphics processing units), and multiple bandwidth transitions.
With regard to AMD, Hans Mosesmann believes that the company, with its Zen processors, has the opportunity to gain share in mid-to-high end x86 server market, which is 99% owned by Intel.
On the other hand, MKM Partners analyst Ruben Roy disagrees with Hans Mosesmann and has a positive view about Intel. Ruben Roy is reluctant to give a “buy” recommendation to AMD. He agrees that the new Zen chips could be an “inflection point” for AMD but that this future growth is already factored in the share price.
He looked at AMD’s EV-S (enterprise value to sales) ratio and found that its ratio of 2.6x was below the peer group average of 3.8x. In fact, its historic EV-S multiple has always traded at a discount. AMD’s EV-S ratio was 3.0x in 2006, when it was at its peak, and its average ratio for the past 20 years is 2.0x.
Notably, you can gain exposure to AMD’s peers by investing in the VanEck Vectors Semiconductor ETF (SMH), which has holdings in 26 semiconductor stocks, including 12.64% in INTC and 5.04% in NVDA.