AMD Stock Got a Downgrade: Is There Limited Upside?

On Wednesday, Advanced Micro Devices (NASDAQ:AMD) stock rose 3.53% and closed at $58.90. At the closing price, the company’s market cap was $68.9 billion. Currently, the stock is trading 0.6% below its 52-week high of $59.27 and 180.0% above its 52-week low of $21.04. On a YTD (year-to-date) basis, AMD stock has gained 28% as of Wednesday. In comparison, the Dow Jones Index and the S&P 500 Index have gained 2.8% and 4.8% YTD, respectively.

AMD stock got a jolt on Thursday. At 9:35 AM ET, the stock was trading 1.2% lower at $58.21. The stock also fell in the pre-market trading session. Wells Fargo analyst Aaron Rakers downgraded the stock to “equal weight” from the earlier rating of “overweight.” However, the analyst increased its target price on the stock from $55 to $64. The new target price implies an 8.7% upside from the stock’s closing price on Wednesday.

According to a report from TheFly, “The analyst is positive on AMD’s competitive positioning and share gain story. However, at current levels, and based on his new sum-of-the-parts analysis, he believes the shares approaching levels that present a more balanced risk/reward. The stock is now discounting estimated 2022 earnings per share of $2.50-plus.”

Analysts’ recommendations for AMD

According to Reuters, most of the analysts tracking AMD stock are on the sidelines. Among the 38 analysts, 14 recommend a “buy”—down from 16 in the last month. About 24 analysts recommend a “hold”—up from 22 in the previous month. The remaining one analyst recommends a “sell”—unchanged from the previous month. Analysts have an average target price of $48.88 on AMD. The target price implies a return of -17% based on the closing price of $58.90 on Wednesday. The lowest target price estimate is $8, while the highest is $66.00.

Following AMD’s fourth-quarter earnings, RBC, Wedbush, Craig-Hallum, Deutsche Bank, UBS, Jefferies, J.P. Morgan, Piper Sandler, and Exane BNP Paribas increased their target prices.

Financial performance in Q4

In the fourth quarter, AMD reported an adjusted EPS of $0.32—a rise of 300% YoY (year-over-year) and $0.01 better than the consensus estimate of $0.31. The company also reported revenue of $2.13 billion—a rise of 49.9% YoY and $20 million above the consensus estimate.

AMD reported sales of $1.66 billion from its Computing and Graphics segment, which includes the company’s graphics cards and PC chips. In AMD’s Enterprise, Embedded, and Semi-Custom segment, the company reported sales of $465 million.

According to a CNBC report, “In the quarter AMD released new Ryzen PC chips featuring tiny 7-nanometer transistors and Radeon gaming graphics cards. Also in the quarter Microsoft unveiled a 15-inch Surface Laptop 3 featuring a custom AMD chip.”

To learn more about AMD’s fourth-quarter performance, read AMD Stock Fell Due to Disappointing Guidance.

AMD stock’s valuation

Analysts expect AMD’s revenues to rise by 29.9% in fiscal 2020 to $8.7 billion compared to the 4.0% growth in the previous year. The sales will likely improve by around 18.9% in fiscal 2021 to $10.4 billion. Also, analysts expect the adjusted EPS to rise by about 79.7% in fiscal 2020. However, analysts expect the earnings to grow by 37.4% in fiscal 2021.

As of Wednesday, AMD was trading at a forward PE ratio of 51.3x and 37.3x for fiscal 2020 and fiscal 2021, respectively.

AMD’s stock returns

On Wednesday, AMD stock was trading 13.8% above its 20-day moving average of $51.76. Meanwhile, the stock is trading 21.9% above its 50-day moving average of $48.31 and 42.4% above its 100-day moving average of $41.37. The stock’s 14-day relative strength index score of 78 suggests that the stock is overbought.

AMD’s upper, middle, and lower Bollinger Bands are $57.70, $51.43, and $45.15, respectively. The stock closed near the upper Bollinger Band on Wednesday, which also shows that it’s overbought.

AMD stock has risen by 145.9% in the last 12 months as of Wednesday. Meanwhile, Intel (NASDAQ:INTC) and Nvidia (NASDAQ:NVDA) have gained 30.6% and 100.9%, respectively, in the last 12 months. Other chip stocks including Qualcomm, Micron (NASDAQ:MU), and Broadcom (NASDAQ:AVGO) have returned 74.1%, 43.0%, and 12.1%, respectively.

Read Is AMD Stock Overbought or Worth Buying? and AMD 2020 Product Ramp Sends Stock to a 13-Year High to learn more.