The Santa Clara, Calif.-based company designs central processing units (CPUs) for personal computers, as well as graphics processing units (GPUs) for PCs, gaming consoles and data centers. It competes with Intel (INTC) in the CPU market and Nvidia (NVDA) in GPUs.
New products and improved profitability have helped AMD stage a solid turnaround over the past five years. A key catalyst: The chip designer has jumped ahead of Intel in making CPUs at smaller node sizes. That gives its Ryzen and Epyc chips an edge in speed and performance.
On Oct. 27, AMD reported better-than-expected Q3 results as earnings per share soared 128% and sales rose 56%.
“Revenue grew 56% year over year to $2.8 billion, driven by strong demand for our Ryzen, Epyc and semi-custom processors,” President and CEO Lisa Su said on the earnings call. “Our client processor business is performing extremely well.”
On Nov. 23, RBC Capital Markets analyst Mitch Steves reiterated an outperform rating on AMD stock and raised his price target to 100 from 92. He cited bright prospects for the chip designer in its core businesses, as well as its pending acquisition of Xilinx (XLNX).
Stocks To Watch: New Entry?
AMD stock broke out past an 88.82 double-bottom buy point on Nov. 30, according to MarketSmith chart analysis. It surged to a high of 96.37 two sessions later, then began forming a high handle. So while it’s slightly extended from the 88.92 entry, a higher handle buy point of 96.47 provides an alternative entry.
Note that the double-bottom base is late stage, which carries higher risk of failure. Growth stocks often make their biggest runs out of early stage bases.
IBD Stock Checkup assigns AMD a best possible 99 Composite Rating, which gives investors a quick way to assess a stock’s key growth traits. That puts it among the top stocks to watch in the 31-stock fabless semiconductor group, which includes Inphi (IPHI), Nvidia (NVDA) and Qualcomm (QCOM).
AMD’s 99 Earnings Per Share Rating, part of the overall composite score, leads the group. It reflects a five-year compound earnings growth rate of 151%, as the chip designer rebounded from losses in 2015 and 2016. Analysts expect a 92% EPS jump this year and 48% the next according to FactSet.
On the technical front, a 90 Relative Strength Rating means AMD is beating 90% of all other stocks. Its relative strength line, which compares a stock’s performance to the S&P 500, is close to all-time highs. That’s a bullish sign. Shares have rallied nearly 100% this year through Friday’s close.
A B- Accumulation/Distribution Rating points to more recent net buying vs. selling by mutual funds. Fidelity Contrafund (FCNTX) and Fidelity Balanced Fund (FBALX) are among highly regarded funds that owned shares in Q3.
Follow Nancy Gondo on Twitter at @IBD_NGondo
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