Will AMD Continue to Gain after Hitting a 52-Week High?

Advanced Micro Devices (AMD) stock hit a new 52-week high of $35.55 on August 9. AMD stock started gaining momentum thanks to the optimism around the launch of its EPYC Rome server processor on August 7. AMD stock also got a boost after its CEO, Lisa Su, denied rumors she was joining IBM as its CEO. It seems that the economic downturn is nearing an end, and it’s time once again to bet on semiconductor stocks.

Among semiconductor stocks, AMD has generated tremendous returns so far this year. The stock has also been performing better than its peers and the S&P 500. AMD has returned 85.2% YTD (year-to-date). In comparison, the S&P 500 has gained 16.43% in the same period. Further, the VanEck Vectors Semiconductor ETF (SMH) is up about 28% YTD. Peers NVIDIA (NVDA) and Micron Technologies are up 15.7% and 30.9%, respectively, YTD. Intel (INTC), however, is down 0.13% YTD as of August 9.

Will AMD Continue to Gain after Hitting a 52-Week High?

AMD’s strong position in the CPU market

AMD has been trying to strengthen its position in the CPU market, which is dominated by Intel. The company’s recent launch of its 7 nm (nanometer) EPYC Rome CPU server is one of its efforts in the space. The new Rome processor is expected to boost the company’s performance across different workloads amid high demand from enterprise and cloud customers. As a result, many of Intel’s customers, including Alphabet’s (GOOGL) Google and Twitter (TWTR), now use AMD’s chips.

AMD stated that Google and Twitter would use the second-generation EPYC processors in their internal data centers. Also, Google will offer it to external developers as part of its cloud computing offerings later this year. Rome’s high power efficiency will reduce Twitter’s data center infrastructure cost by 25%.

Besides Google and Twitter, other companies such as Microsoft and Dell will also use AMD’s next-generation EPYC processors. Apart from the EPYC server chips, AMD launched the 7 nm Ryzen PC CPU and Navi GPU (graphics processing unit) processors in early July.

AMD’s new chip seems to have dethroned Intel, which has dominated the CPU space for around a decade with over a 90% market share. Intel is set to launch its Cooper Lake Xeon chips with 14 nm processors next year. Intel is also developing its 7 nm processors, which should release in 2021.

AMD is also making progress in the EPYC server space. The company has completed the design of its third-generation EPYC Milan CPU and has started designing the fourth-generation EPYC Genoa CPU.

AMD’s strong growth prospects

AMD and other semiconductor stocks have been hit by the ongoing trade war with China and an uncertain global environment. AMD posted a double-digit decline in second-quarter revenue due to a decrease in graphics channel sales and semi-custom sales. The chip maker also predicted lowered revenue for the full year on July 30, which further weighed on its stock. A decline in game console chip demand led to a cut in the revenue forecast.

Nevertheless, AMD delivered higher client processor and data center GPU sales in the quarter. We believe the company’s progress in EPYC server processors is likely to boost its revenue and further fuel its stock growth.

Analysts expect weak sales growth in 2019 compared to its 2018 growth rate due to weakness in game console chip demand. Analysts expect the company’s sales to grow 4.57% in 2019, down from its growth rate of 21.5% in 2018. They expect its sales to improve in 2020 with a growth of 24.2% year-over-year.

Will AMD Continue to Gain after Hitting a 52-Week High?

Analysts’ recommendations

Of the 36 analysts tracking AMD, 14 have rated the stock as a “buy,” while 20 have rated it as a “hold.” Only two analysts have recommended “sells” on the stock. Analysts have given it an average target price of $33.16, which implies a discount of 3% based on its closing price of $34.19 on August 9.

Two analysts have raised their price targets this morning on increased optimism in AMD. RBC Capital has increased its price target to $44 from $43, while Cowen and Company has hiked it to $42 from $40.