AMD stock shot up by a massive 6.75% yesterday. Yet, the stock may have a lot of upside left.
Well, most us know by now why shares of Sunnyvale, California-based Advanced Micro Devices Inc (NASDAQ:AMD) shot up by close to 7% yesterday. For those who don't, here's a quick recap of the key developments that have enthused investors. Starting with what we know for sure, AMD received some upgrades coupled with bullish commentary from two separate analysts. One came from Mark Lipacis of Jefferies & Co., while the other came from Susquehanna Financial Group’s Christopher Rolland. The second call was less bullish, with the latter, Roland, hiking his target price from $9 a share to $12, which is still way below AMD's closing price of $14.4 yesterday. Rolland, however, believes that AMD's Ryzen sales could gather steam in April.
Rolland pointed out that while some smaller PC makers were selling Ryzen desktops, demand from large PC makers or Original Equipment Manufacturers (OEMs) would only come in later. Quoting from a post on Fortune, Rolland said, "No major PC OEM (HP, Lenovo, Dell, Asus) is currently selling Ryzen desktops. We estimate sales will begin in April." So, in spite of the target price being lower than prevailing market price, at large, Rolland's view does have some positives on offer for AMD shareholders. Mark Lipacis' commentary had more optimism built into it, though.
Lipacis not only hiked his AMD target price from $13 to $16, he also came out with revenue estimates that reinforced the positive sentiment around the stock. Unlike Rolland, who has a neutral rating on the stock, Lipacis, has a buy rating on AMD stock. Further, Lipacis raised his revenue forecast for this year, albeit slightly, from $5.03 billion to $5.06 billion. That apart, Lipacis also anticipated that AMD's gross margins would continue to improve and that AMD would continue to grab market share from Intel in all three segments, namely the server, desktop and notebook computer markets. Based on different estimates of market share, here's what the impact could reportedly be, according to the Jefferies analyst:
"If AMD reaches 5% market share in all three segments, it could generate as much as $1.5 billion of additional revenue over the next few years, Lipacis forecast. Hitting 15% in the three markets could add as much as $4.6 billion. That's more than the $4.3 billion AMD brought in for all of last year."
However, that was not all. On Sunday, rumor mills were rife with speculation of a "Monster AMD Ryzen 16-Core CPU" hitting the market. According to the author of this highly cited post on Forbes, Anthony Leather, AMD's Ryzen CPU "easily beats Intel's more expensive CPUs in rendering and content creation workloads that use plenty of threads". Quoting him:
"Looking to build on this success, the company is rumored to be working on a monster 16-core, 32-thread CPU." Leather also added that AMD is rumored to be working on "a completely new platform to take advantage of this mega CPU, which has six more cores than Intel's current flagship desktop CPU - the Core i7-6950x which has just 10 cores and 20 threads. If recent performance is anything to go by, with 16 cores on tap, it's likely this CPU could be the ultimate desktop CPU for multi-threaded workloads."
All of this, put together, made for a very bullish narrative for AMD. And while AMD shares were up by over 6.7% yesterday, a combination of technical indicators suggest that the stock hasn't entered overbought territory yet, in spite of yesterday's pop. As of March 17th, the Relative Strength Index (RSI) was at just over 30, which is in fact, pretty close to oversold territory. Following the recent upticks, including that of yesterday's, the RSI is now at 49.44, far from the most commonly used overbought threshold of 70. Similarly, if you look at the Bollinger Bands, AMD's stock price is a fair distance from the upper Bollinger band, which is currently at $15.13. AMD's stock price has also made a bullish crossover with its 20-day simple moving average. So, all in all, AMD is far from overbought territory, even after yesterday's massive rally. At the time of writing, the AMD stock is up by 0.69% in pre-market trade, and it won't be surprising if the stock continues to move higher in the coming trading sessions.
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