Wall Street Analysts Continue To Jump Onto the Bullish AMD Bandwagon.
- Advanced Micro Devices, Inc has had a pretty eventful fortnight.
- AMD stock has received multiple Wall street upgrades and is up over 11% in just this month.
- Is AMD stock still a good buy after having quadrupled investors money in 2016?
Shares of Sunnyvale, California-based Advanced Micro Devices, Inc. (NSDQ:AMD) have been on a run this year. Starting this year at $2.87, AMD stock closed the last trading session at $11.51, having more than quadrupled investors money in the year to date. Wall Street Analysts have been jumping onto the bullish bandwagon thick and fast, hiking price targets and upping ratings even as the AMD stock has accelerated to newer highs throughout the year. With 2016 drawing to a close, can AMD stock continue its dizzying run in 2017?
Number Of AMD Bulls Is Clearly Rising On Wall Street
The rise in AMD stock price has been accelerated by a continuous flow of bullish commentary from Wall Street. In this month alone, AMD has received bullish notes from many Wall Street firms including BAML, BMO Capital Markets, Canaccord Genuity, Morgan Stanley and Jefferies. Mizuho securities analyst Vijay Rakesh was the latest to join the party, upgrading AMD stock to a 'Buy' rating from 'Neutral' earlier while setting a $13 price target, implying 13% further upside from the last close price. As per thefly.com, the Mizuho analyst 'sees deep learning and AI as the next big computing paradigm and believes the company has an opportunity for deep learning with its new Radeon ProGFx/Ryzen products.' (See also: Advanced Micro Devices, Inc: Is AMD Stock Set To Skyrocket After Ryzen Release?)
AMD Is Finally Firing On All Cylinders
The recent unveiling of its machine learning strategy along with it Radeon Instinct GPUs followed by the launch of its ZEN based Ryzen CPU line-up showed that AMD could finally gain some meaningful exposure to some rapidly growing markets. The early reviews have been more than encouraging, even though the real world performance is yet to be measured. Radeon Instinct matched up to the best in the class, NVIDIA's (NSDQ:NVDA) P100, in benchmark tests while the new ZEN based Ryzen CPU line outperformed their respective Intel (NSDQ:INTC) counterparts. So what exactly does this mean for AMD investors?
Deep learning/machine learning markets are rapidly growing. The broader AI market is expected to grow 57X over the next decade. With its Zen CPUs (while consumer version of Zen CPUs is branded 'Ryzen', server version will still be called Zen) and the Radeon Instinct GPU lineup, AMD hopes to become an end-to-end provider of high-performance heterogeneous computing systems. And well, it's again fighting in two critical markets against 2 very powerful competitors: Intel on the CPU front and NVIDIA on the GPU front. There have been innumerable cycles in the past where AMD has gained market share before having it clawed back from them. But things could be a little different this time around. So, what exactly is different now?
Well, until now, AMD was competing in product segments which are well past their peaks: the PC focussed CPU and GPU markets and SOCs in the Game console market. These are markets which are well past their peaks, which are often 'temporarily' resurrected by new product launches (2016 saw Xbox and Play station upgrades which drove AMD SOC sales) before fading away until the next product upgrade arrives. These upgrade cycles are beyond the control of AMD and due to the secular decline of these markets, more often than not, AMD is competing for market share gains against its stronger and 'more focussed' competitors. But this could change given the huge growth potential of the AI market. AMD will, for a change, be competing in a market which is in a secular, steady and steep uptrend. (See also: AMD Stock: A Huge Opportunity For Advanced Micro Devices Inc)
Putting It All Together
AMD unveiled its machine learning strategy last week before following it up with the launch of the Zen based CPUs. The new Radeon Instinct GPUs and the latest Zen CPUs could help AMD pitch itself as an end to end provider of hardware required for AI focused high-performance and heterogeneous computing. Given the current growth trajectory of the AI market, it's not surprising that many analysts are bullish about the prospects of AMD. The recent product launches could provide AMD with new revenue streams from the AI focused cloud computing (data center) market.
Trading at 2.3x TTM (Trailing twelve months) sales compared to NVIDIAs PS ratio of 9.2X and Intel's 3X sales multiple, it's understandable why many analysts are bullish, citing the AI market opportunity. However, AMD stock has already run far ahead of its fundamentals which means that even though realizing the implied potential might bring incremental gains, a failure of the Zen based CPUs or the Radeon Instinct GPUs could induce a sharp correction in the AMD stock price. Hence, only investors with a high-risk tolerance should consider AMD at this point. More conservative investors can turn their attention to NVIDIA in order to play the AI market growth.
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