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AMD Stock Rose over 11%: Will the Rally Continue?


Apr. 7 2020, Published 10:56 a.m. ET

Advanced Micro Devices (NYSE:AMD) stock closed 11.58% higher on April 6 due to the coronavirus rally. The broader markets, including the Dow Jones, the S&P, and the Nasdaq Composite, each rose by more than 7% on Monday. The broader markets have risen due to fewer coronavirus cases in the US. Among the total cases reported in the US, there have been fewer new virus cases in the US from 15.1% on March 31 to 8.1% on April 5. The decline has infused optimism among investors, which led to a stock market rally.

Like AMD, Nvidia (NASDAQ:NVDA) stock also rose over 10% on Monday. Intel (NASDAQ:INTC) gained 7.94%, while Micron (NASDAQ:MU) rose over 12% due to increased optimism among investors. The Dow Jones futures have risen around 3.36% this morning. The S&P futures and Nasdaq futures have risen by 2.99% and 2.62%, respectively. AMD stock has also risen in the pre-market session today. So far, AMD has risen by more than 2.7% as of 8:00 AM ET.

AMD stock ended the trading day at $47.52 on Monday after reaching its high of $59.27 on February 19. The stock is trading 19.8% below its 52-week high of $59.27 and 82.6% above its 52-week low of $26.03. At Monday’s closing price, AMD’s market cap was $55.6 billion.

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Buying AMD stock for the long term

I think that AMD stock will be resilient amid coronavirus volatility. The stock was flat in March. AMD stock fell by around 0.8% in the first three quarters of the year due to the coronavirus outbreak. Now, the markets are giving signals of recovery. I think that the stock is ready to rebound.

AMD stock has been gaining momentum due to its product launches. In 2019, AMD stock reached its 13-year high on the announcement of Ryzen processors and the launch of EPYC Rome. AMD CPUs (central processing units) and GPUs (graphics processing units) have progressed well in 2019. They positioned AMD to compete with Intel (NASDAQ:INTC) and Nvidia (NASDAQ:NVDA) in terms of performance. According to AMD CEO Lisa Su, the company’s 64-core EPYC server CPU had a performance advantage over Intel.

The company is prepared to gain a higher market share in 2020 with its new product line-up, including launching its next-generation Zen 3 and RDNA 2 architecture. Sony and Microsoft’s next-generation gaming consoles, with AMD chips, will hit the markets during the 2020 holiday season. Analysts are also looking forward to a gaming recovery with the Navi adoption later this year.

According to a Bank of America analyst, cited in a SeekingAlpha report, AMD’s Navi processors could catch up with Vega gaming processors. The company is also working with Hewlett Packard and the Lawrence Livermore National Laboratory to work on the world’s fastest supercomputer, El Capitan.

In January, the company delivered upbeat results for the fourth quarter of 2019. AMD’s revenue of $2.13 billion also rose 49.9% YoY, while its adjusted earnings of $0.32 rose 300% YoY in the quarter.

AMD’s outlook

During the fourth-quarter earnings call, AMD predicted revenues of $1.8 billion (plus or minus $50 million) in the first quarter, which represents growth of 41.5% YoY. Wall Street analysts also expect AMD’s sales to grow by 40.2% YoY to $1.8 billion in the first quarter. AMD expected its revenue growth to be 28%–30% for fiscal 2020. However, analysts expect lower sales growth of 27.8% for 2020 due to the negative impact of coronavirus. For 2021, analysts predict revenue growth of 20.5% YoY compared to revenue growth of 3.9% YoY in 2019.

AMD’s management expected higher gross margins of 46% in the first quarter. The gross margins were 41% in the first quarter of 2019. However, the company also predicts its operating expenses to grow by around 16.5% YoY to $580 million in the first quarter.

Analysts’ recommendations

Among the 39 analysts covering AMD stock, 18 recommend a “buy,” 20 recommend a “hold,” and only one recommends a “sell.” The mean target price of $50.71 implies a 6.71% upside from the closing price on Monday. Last week, a Bank of America analyst raised its target price on AMD stock to $60 from $53.

Currently, AMD stock isn’t overbought or oversold. The stock has a 14-day relative strength index score of 53.77. Meanwhile, the stock looks overbought. AMD stock closed near its upper Bollinger Band level of 49.57 on Monday.

I think that AMD stock is a recession-proof stock. As a result, the stock could be a great bet for investors. AMD stock has the potential to survive the stock market crash due to the coronavirus pandemic. Notably, the stock has outperformed the broader markets in the past.


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