Go ahead long-term AMD (NASDAQ:AMD) investors, it’s time to take a long awaited and well-deserved victory lap. With all due respect to NVIDIA (NASDAQ:NVDA), AMD has been the hottest semiconductor stock in recent months, and a knock out second quarter earnings report sealed the deal for shares to hit new all-time highs.
But after running up 10% in the last month and 13% this week alone, is AMD still a buy? Or have investors missed the breakout for AMD?
If you have held AMD through the years, you are the definition of believing in the fundamentals of a great company and holding for the long-term.
Let’s ignore the fact that AMD actually IPO’d back in 1979, well before semiconductors were used as frequently as they are today. Even if we take the last ten years of AMD’s stock chart, shares traded mostly sideways until 2019.
It’s only been in the past year or two that AMD has broken out, which tells me that something has fundamentally changed in the trajectory of the company. AMD is experiencing rapid growth over a short period of time, and the behavior of the stock itself is heading in a new direction: up.
AMD Smashes Wall Street Estimates in Q2
If you want to know what has fundamentally changed with AMD’s stock, it all begins with a year over year growth in revenues of 99% to $3.85 billion. This also marked a 93% sequential growth from Q1 of 2021, a staggering acceleration considering the world is mired in a global semiconductor shortage.
On the call, CEO Dr. Lisa Su noted that she was able to get extra supply from the chip fabrication partners, a savvy move by a CEO that is only starting to get the praise she deserves on Wall Street.
It was also the first quarterly earnings call since the company acquired semiconductor company Xilinx, and the completion of that deal also seems to be gaining the attention of AMD bulls.
A lot has changed from the version of the company who was a laggard in the chip industry. AMD is impressively profitable now, with gross margins hitting 22% and total free cash-flow of $888 million for the quarter. How has AMD turned the ship around?
With lucrative contracts for its quality products. AMD noted that half of the supercomputers in the world are powered by its data center CPUs, an industry that has been dominated by NVIDIA until now.
With partnerships with Google Cloud, the latest gaming consoles in the Playstation 5 and XBox Series X and Series S, GPUs in Apple Macbooks, and even providing the GPU for Tesla cars, AMD has stacked its portfolio with some of the biggest names in the tech industry.
Wallstreet upgrades AMD stock after earnings
After a strong Q2 performance, Wallstreet analysts were quick to upgrade the stocks 12 month price targets. Across the board of 28 Wallstreet analysts, the average price currently stands at $107.36 which suggests a slight upside.
However, for targets released after the earnings the average is bolstered up to $114.54 a share representing an upside of 11.26%.
Rosenblatt analyst Hans Mosesmann raised AMD’s price target to a street high of $150 a share. Mosesmann noted the Q2 beat was “even more compelling” given industry supply chain shortages. The analyst highlighted the significance of AMD’s sales growth for 2021 which surged to 60% level from 50% on broad-based demand.
Analyst Christopher Rolland at Susquehanna also raised their price target on AMD to $130 a share, representing a 26% upside. Rolland said he anticipated strong results and guidance but he had not expected the company to “navigate supply constraints flawlessly and raise full year expectations” according to theFly.
The Bottom Line – AMD Stock Forecast 2021
It’s not just investors who are falling back in love with AMD, Wall Street is too. Three key analyst upgrades have accompanied AMD’s ascension, including a price target raise from Goldman Sachs to $115, and Susquehanna providing a price target of $130.
AMD is a completely different company from the one who trailed Intel (NASDAQ:INTC) for years, and so, the stock behavior should be treated differently before and after 2019.
AMD is now in rapid growth mode as it battles with NVIDIA for the lead in the semiconductor industry.
Only, rather than trading at high multiples and remaining unprofitable, AMD is nearing $1 billion per quarter in free cash flow, and holds an A-list portfolio of partners that should help carry AMD’s stock higher over the next decade.
Edited by Tyger Fitzpatrick, Founder of Youth Investment Group.
See the NVIDIA stock forecast here
The information above is not financial advice. Youth Investment Group has no liability for personal financial interests or investment decisions. You should make your own investment decisions based upon your own research and what you believe is best for you.
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