Can AMD Stock Rally more on Analysts’ Upgrades?

Advanced Micro Devices (NASDAQ: AMD) stock has been making new highs every other day. On January 9, AMD stock reached its all-time high of $49.96, crushing its previous high of $49.25 on January 2. The stock gained momentum on the back of analysts’ upgrades and new product offerings. Notably, a Wall Street analyst lifted AMD’s price target on Friday, while another analyst upgraded the stock on Thursday.

Despite analysts’ upgrades, the AMD stock fell about 1.64% on Friday. Also, the broader markets were down on weaker-than-expected December job numbers. The S&P 500 was down by 0.29%. Meanwhile, the Dow Jones Industrial Average and Nasdaq Composite ended lower by 0.46% and 0.27%, respectively, on Friday.

AMD stock closed the trading day at $48.17, around 3.6% lower than its new 52-week high of $49.96. Additionally, the AMD stock is trading around 153.3% higher from the 52-week low of $19.02. At the closing price of January 10, AMD’s market value stood at around $56 billion.

Meanwhile, we firmly believe that AMD stock should rally further in 2020, amid strong product portfolio and favorable chip scenario. Let’s understand what analysts expect from AMD in 2020.

Bank of America and Mizuho upgraded AMD stock

On January 10, Bank of America lifted its price target on AMD stock to $56. Earlier, the price target was $52. Bank of America analyst has, however, retained its “buy” rating on AMD stock.

On January 9, Mizuho Securities analyst upgraded the AMD stock to “buy” from “neutral” rating, per CNBC. Notably, Mizuho had been “neutral” on AMD for six months. Also, Mizuho analyst Vijay Rakesh raised its 12-month price target to $55 from $38.

Mizuho’s views on AMD stock

Mizuho analyst is optimistic about the 2020 server market and believes it “could be stronger than the current muted consensus” expectations. Mizuho said to its clients that AMD stock will continue to rally amid easing US-China trade tensions, reported in CNBC. Notably, US President Trump tweeted that he would sign the phase-one trade deal with China on January 15.

Analyst Rakesh expects the server market to grow by 7% YoY (year-over-year) in 2020, as reported in TheStreet. Last year, the server market declined by 7% YoY. Rakesh pointed that AMD’s server market share will now gain as its rival Intel (NASDAQ: INTC) is done with its aggressive price cuts. We believe AMD would benefit amid Intel’s delays to launch 10-nanometer Ice Lake single-socket server products.

Further, Rakesh believes that AMD will benefit from the improving PC (personal computers) market, as reported in TheStreet report. Rakesh pointed out to its client that the PC market will perform better than expected in the first half of 2020. The new Sony Playstation 5 AMD gaming console cycle starts in the second half of the year.

Other analysts’ view on AMD stock

Like Mizuho, several analysts upgraded their price targets and ratings on the AMD stock on its product offerings. In fact, AMD stock’s rally in 2019 was mainly driven by analysts’ upgrades and new chips.

On January 2, Nomura Instinet raised its 12-month price target to $58, maintaining a “buy” rating on the AMD stock. Nomura analyst David Wong expects the chip giant to continue to launch new products using 7nm and 7nm+ technologies. Like Mizuho, Nomura analyst also expects AMD to gain a higher market share in 2020. Wong believes top-line growth and improving operating leverage should help AMD gain a higher market share.

Then in early January, Rosenblatt Securities named AMD and Micron stocks as the top semiconductor picks for 2020. Rosenblatt analyst Hans Mosesmann lifted its price target to a Street-high of $65. Also, Susquehanna analyst Mehdi Hosseini expects AMD’s line-up of chips to boost its market share.

RBC Capital, Wedbush, and Wells Fargo turned bullish on AMD on substantial growth opportunities ahead. RBC Capital trusts AMD CEO Lisa Su’s vision for its growth and predicts data-center and gaming chips demand ahead. Also, Piper Jaffray analyst Harsh Kumar raised its price target. He expects AMD to benefit from Intel’s (INTC) delay in chip-supply issues.

We note that many laptop OEMs (original equipment manufacturers) started adopting AMD’s Ryzen Mobile due to Intel’s CPU supply shortage. According to Mercury Research data published by Tom’s Hardware, AMD’s x86 laptop CPU market share rose from 8.8% in Q2 2018 to 14.7% in Q3 2019.

AMD’s new products offerings

AMD is launching new chips to sustain its market share in the CPU (central processing unit) industry. We believe that AMD will continue to ride on growth in 2020 amid a strong line-up of products.

During CES (Consumer Electronics Show) 2020, AMD announced four new products. The company unveiled its third-generation Ryzen Mobile 4000 series CPU, based on a 7 nm (nanometer) node, on January 6. These CPUs will hit the market on January 21.

AMD claims that its new Ryzen Mobile 4000 series is better than Intel’s 10 nm Ice Lake mobile CPUs. Plus, AMD believes that its new CPUs are more powerful than Intel’s latest desktop CPUs in gaming and high-performance computing.

Notably, AMD’s 7nm EPYC processors are considered more powerful and cost-effective than Intel processors in the server CPU market. Also, AMD’s Zen and Zen 2 chip designs or EPYC Rome CPU processors are considered better than Intel’s chips.

During the third quarter, the company predicted its 7nm Ryzen, Radeon, and EPYC processors to help drive sales ahead. The Radeon RX 5500 XT GPU and 7nm Navi-based GPU (Radeon RX 5700) would help in boosting gaming sales. AMD plans to supply chips to Microsoft’s (NASDAQ: MSFT) upcoming video-game console. AMD could release Navi graphics cards, dubbed the “NVIDIA Killers,” in 2020.

AMD’s growth projections

The chip giant will report its fourth-quarter results by the end of January. AMD projected its Q4 revenue to be around $2.1 billion, up about 48% YoY growth. The company predicts its gross margin to be about 44% in the fourth quarter.

During the second quarter, AMD anticipated its full-year revenues to rise in the mid-single digits. Also, AMD predicted a gross margin of 42% for 2019.

For Q4, analysts expect AMD’s sales to grow by 48.5% YoY to $2.1 billion. Wall Street analysts, however, expect 2019 sales to grow by about 3.7% YoY to $6.7 billion. AMD sales are expected to improve by 27.5% YoY to $8.6 billion in 2020 on its solid chips.

Wall Street analysts expect its adjusted earnings to grow over 100% YoY to $0.31 per share. Also, analysts expect the full-year EPS to spike by 35.2% YoY to $0.62 per share. They anticipate earnings growth of 79% YoY in 2020.

Analysts’ recommendations and target price

Among the 40 analysts covering AMD stock, 16 have “buy” ratings, unchanged from the previous month. About 22 analysts have “hold” ratings on the stock, down from 23 last month. Meanwhile, two analysts gave “sell” ratings on AMD stock, up from 1 last month.

As of January 10, analysts gave AMD stock a 12-month average price target of $40.57. Based on that day’s closing price, this price target represents the potential downside of 15.8%.

Reading the technical levels

AMD’s 14-day RSI (relative strength index) score is 67.49. This indicates that investors are currently neutral on the AMD stock, but is nearing the “overbought” range. Notably, when RSI number goes above 70, it indicates that a stock is in “overbought” territory. Meanwhile, an RSI level of below 30 means that the stock is in the “oversold” area.

On January 10, the AMD stock closed near its Bollinger Band upper range level of $50.77. The value suggests that the AMD stock is in the overbought territory.

AMD’s stock price performance in 2019

AMD stock made significant returns in the past year. The chip stock gained the most in the semiconductor sector. AMD shares gained 148.4% in 2019. In comparison, close rivals Nvidia (NASDAQ: NVDA) and Intel rose around 77% and 30.0%, respectively.

Chipmakers Micron (NASDAQ: MU) and Marvell (NASDAQ: MRVL) gained 69.5% and 64.6%, respectively. Meanwhile, Qualcomm (NASDAQ: QCOM), Broadcom (NASDAQ: AVGO) gained 58.3% and 25.4%, respectively. The VanEck Vectors Semiconductor ETF (NASDAQ: SMH), as well as the S&P 500, grew about 62% and 29% in 2019.

Looking at the analysts’ views and technical indicators, we believe the AMD stock has had its bull run. Yet, AMD stock still has the potential to maintain its growth momentum in 2020.