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Could AMD’s Strong Stock Price Momentum Continue in 2017?

Puja Tayal - Author
By

Aug. 18 2020, Updated 4:39 a.m. ET

AMD’s stock outperforms market

In the earlier parts of this series, we saw that Advanced Micro Devices (AMD) is looking to improve its earnings and strengthen its balance sheet by targeting the high-end computing and graphics market. 

However, the company’s negative cash flows and earnings restricted it from giving returns to shareholders through dividends or share buybacks. The only way AMD’s investors earned money was through stock price gains.

In the past 12 months, AMD stock has risen 160.5%. AMD stock outperformed the S&P 500 Index (SPY), which rose 14.9% during the same period. The stock also outperformed its peer Intel (INTC), which rose 1.9%. 

However, INTC underperformed NVIDIA (NVDA), which rose 195.0% during the same period. INTC’s stock price was largely driven by new product launches and earnings growth.

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AMD’s stock price movement in 2017

Since the start of 2017, AMD’s stock price rose 15.0%, and NVIDIA’s stock price rose 41.5%. On the other hand, Intel’s stock price fell 7.6% year-to-date as the company’s transition has subdued its revenue growth for fiscal 2017.

AMD’s stock price growth slowed in 2017, as the most bullish of the earnings have been priced in. As a result, analysts have given a “hold” recommendation on AMD stock. However, a few analysts are still bullish on AMD and believe that the EPYC processor has a strong growth potential that has not yet been priced into the stock price.

In the last one-month period, AMD’s stock price rose 9.1%. On the other hand, NVIDIA’s and Intel’s stock prices fell 9.7% and 7.3%, respectively. NVIDIA’s stock price fell as AMD launched its Vega GPU (graphics processing unit), which would compete with NVIDIA’s most powerful GPU. Intel’s stock price fell as AMD launched the EPYC server processor, which would compete with Intel’s current Broadwell server processor.

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AMD’s stock price also rose as the Semiconductor Industry Association reported that global chip sales rose 22.6% YoY (year-over-year) to $31.9 billion in May 2017, the highest growth since September 2010. As AMD launches more products in 2017, its stock price movement could slow. However, we could see strong momentum if its earnings grow at a better-than-expected rate.

AMD’s volatility

Looking at AMD’s stock price movement for the last 12 months, it is clear that the stock is generally volatile. AMD has a beta of ~2.5, whereas Intel has a beta of ~1.3. However, NVIDIA’s beta of ~2.8 makes it more volatile than AMD. Beta is a measure of volatility, with a beta less than 1 being less volatile and a beta greater than 1 being more volatile.

Next, we’ll see if AMD’s $13.00 stock price is fundamentally overvalued based on its sales and earnings.

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