Advanced Micro Devices (NASDAQ:AMD), commonly known as just AMD, is sometimes a darling of the markets. Investors often ignore AMD because of “shinier” distractions. They always return to AMD, eventually. AMD stock deserves a “B” grade for most long-term portfolios.
We’ll discuss valuation concerns related to AMD. These concerns aren’t a deal breaker. Successful companies justify valuations with long-term revenue and earnings growth. So, it’s fine to set your sights on a high share-price target for AMD, as long as you’re not expecting spectacular gains tomorrow or next week.
AMD Stock: A Super Bet on Supercomputers
Here’s an AMD angle you might not have considered, but really ought to. There’s a quiet revolution happening right now with supercomputers, and many of them are powered by AMD’s lightning-fast chips.
For example, the Frontier supercomputer at Oak Ridge National Lab is touted as the world’s fastest supercomputer. And, it’s powered by powered by AMD’s EPYC central processing units and Instinct graphics processing units.
AMD claims that its hardware currently “powers 156 supercomputers on the latest Top500 list.” It also powers “157 systems on the Green500 list of the most efficient supercomputers in the world.”
Clearly, AMD is staking its claim in the realm of high-performance computing. It’s an angle that financial-press commentators really don’t talk about very often. Yet, this is could be a significant part of AMD’s growth story throughout the 2020s.
Is $190 a Good Share-Price Target for AMD?
While supercomputers will be relevant for years to come, AMD’s primary near-term growth driver will probably be artificial intelligence chips. On that topic, Jefferies analyst Blayne Curtis envisions rising AI-chip demand to help propel AMD stock to his price target of $190.
That’s not unrealistic, and the AMD share price will probably revisit $200, eventually. Remember, the stock has a 52-week high of $227.30.
Curtis expects to see a strong “upcycle” in the semiconductor market, and that’s a realistic assumption. Investors shouldn’t get so excited that they over-invest in AMD stock.
Investors should recall that AMD guided for current-quarter revenue of $5.4 billion to $6 billion, the midpoint of which is $5.7 billion. That’s slightly below Wall Street’s estimate of $5.72 billion.
AMD’s GAAP trailing price-to-earnings ratio of 239.45x might cause consternation for some investors. But then, that’s just one way to measure AMD’s valuation, and a fast-growing company can justify its P/E ratio over the long run.
Hence, you can choose to invest in AMD with confidence, but also be patient and avoid over-allocating into just one stock.
AMD Stock: Consider Adding or Holding It
Today’s take-away is that AMD should benefit from growth in the markets for AI chips and supercomputers. AMD’s valuation may be a concern for some investors, but it doesn’t have to be a deal breaker.
Don’t expect the AMD share price to reach $190 or $200 very soon. Consider this investment as a marathon rather than a sprint.
Ultimately, we’re assigning AMD stock a “B” grade, and you may choose to start or add to a moderately sized position. Alternatively, if you’re very concerned about AMD’s valuation, you can just maintain your current AMD share position without adding to it now.
On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.
