Investors and analysts at crossroads
In the preceding parts of this series, we discussed how Advanced Micro Devices (AMD) stock is moving up so far in 2018, though analysts still don’t recommend a “buy” for the stock, likely because its growth trend may not be sustainable. The cryptocurrency trend and Intel’s (INTC) chip design flaws may not be strong enough factors to drive AMD’s growth over the long term.
Similar growth trends are driving NVIDIA’s (NVDA) stock as well, but NVDA has other long-term trends, such as AI (artificial intelligence) and autonomous driving, and so investors are still preferring NVIDIA over AMD. Still, AMD stock can’t quite be ignored because most agree that it has strong growth potential.
Tech stock prices are largely being influenced by the noise surrounding cryptocurrency and the recently discovered design flaws. But if we get past all this noise and look at the above three stocks’ fundamental values, AMD still appears to be in good standing.
AMD has a PS (price-to-sales) ratio of 2.4x, which is lower than Intel’s 3.4x and NVIDIA’s 16x. Remember, a company’s PS ratio tells us the amount investors are willing to pay for every dollar of the company’s sales.
AMD is the cheapest of the three stocks and has started to grow in the already established markets of PCs (personal computer) and servers. It has also recently turned from losses to profit. When you start from zero, there’s typically an ample opportunity to grow.
If AMD manages to gain a ~5% share from Intel in the PC and server CPU (central processing unit) markets, its revenue would likely see a significant boost. NVIDIA, of course, has a strong growth potential, but its high valuation has made it an expensive stock to buy, but if AMD manages to move back to its 2017 high of $15, it would mark a 21% rise from its current trading price of $12.4.
What could drive AMD’s stock price in 2018?
AMD has growth potential, without a doubt, and a potential growth driver in 2018 will no doubt be its potential to increase its ASP (average selling price) by increasing the contribution of its Vega and its high-end Ryzen in its product mix. Another growth driver could be its agreement with Intel to provide Vega GPUs, which would likely open a whole new market for AMD and help it gain some market share in the discrete GPU (graphics processing unit) space.
Of course, AMD stock could also be driven by Apple’s (AAPL) latest specification of the Vega for its latest iMac Pro.