Advanced Micro Devices, Inc. shareholders are jubilant on Wednesday morning. Before the market is set to open, the firm’s shares were up by more than 10 percent. The reason for the jump in value was a n earnings report released after the market closed on Tuesday afternoon, July 25th. Not everyone is so positive on the firm’s future, however.
Chris Danely of Citigroup released a report in response to the firm’s earnings. He’s sticking to fundamentals when thinking about AMD stock. The firm is still losing money despite guiding for higher revenue, and the current valuation just doesn’t support a buy in. The Citi report shows just what kind of canyon exists between the two sides of the AMD stock trade.
Advanced Micro Devices, Inc. is obviously overvalued
On Wednesday morning AMD stock was worth a total of more than $14.5 billion. Over the last year, the firm’s market capitalization has grown by close to 150 percent. The run that CEO Lisa T. Su has brought the firm on since 2014 is approaching legendary status. Why then is Citi so cold on the stock’s future?
If judged by fundamentals, Advanced Micro Devices, Inc. isn’t a great bet by any means. The first red flag, and it’s a major one, is that it loses money. Firms that lose money year on year aren’t normally considered safe bets.
This over-valuation thesis holds up until you see the way the stock has been traded over the last twelve months. When people are on the losing side of a trade irrationality is always an easy explanation for differing points of view. If you’re serious about trading, however, it’s important to have an understanding of the beliefs that drive trading.
Here’s why Advanced Micro Devices, Inc. stock is flying
Bank of America’s Merrill Lynch unit raised its price target on Advanced Micro Devices, Inc. stock by more than 9 percent on Wednesday to $18 after reviewing the numbers.
At the same time Baird started covering AMD stock for the first time. Their analyst Tristan Gerra reckons shares are headed to $20 over the next twelve months. It’s not irrationality that’s driving these forecasts, it’s a real belief about the future of the firm.
Gerra, for example, reckons that Advanced Micro Devices, will see double digit revenue and earnings growth for years to come off of the back of its new CPU designs. The fact that Apple Inc. is apparently set to put the next gen Advanced Micro Devices, Inc. in its iMac is another major catalyst.
He’ll be looking to see AMD post actual earnings in 2017. It will be low, however, coming in at around 3 cents per share. By Gerra’s model earnings will rocket heading into 2018. He sees the number hitting $0.35 per share for the next full year at Advanced Micro Devices.
Vivek Arya of Merrill Lynch tends to agree. He sees large growth in the GPU market benefiting both AMD stock and that of its major rival NVIDIA Corporation.
So, who is to be believed on the future of AMD stock? Only time can possibly tell. Both sides have their precedents for being right. This wouldn’t be the first time a chip-maker built itself up out of obscurity. At the same time, however, we’ve heard a lot of phoenix reborn stories in recent years. Few enough have proved true.
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