Will innovative products and technologies continue to power AMD stock higher in 2017?
- Although AMD' stock had appreciated by 295.1% in 2016, it still has room to grow.
- AMD has strong growth prospects due to innovative new products and technologies.
- The target price for AMD's stock of $13 which was suggested recently by top analysts, appears reasonable, in my opinion.
Advanced Micro Devices, Inc. (NASDAQ:AMD) had been by far the best performer in 2016 among all the 413 Russell 3000 tech stocks. Its stock price appreciation of 295.1% in 2016 was significantly higher than the second ranked tech stock NVIDIA Corporation (NVIDIA (NASDAQ:NVDA) which gained 223.8% and the third-ranked stock Oclaro Inc. (NASDAQ:OCLR) which was up 157.2% in 2016.
As such, investors might doubt if the stock still has room to grow, or whether it is time to take the profit and sell the stock. As I see it, due to the company's very promising new products and applications, the rally is not over, and the stock could go even higher. In fact, two analysts Vijay Rakesh of Mizuho Securities and Mark Lipacis of Jefferies, who are ranked by TipRanks as five-star analysts (the highest rank) according to their performance, recently suggested a target price of $13 for AMD stock. That represents an upside of 15.6% from its January 5, 2016 closing price of $11.24.
AMD recently announced very promising new products and technologies, which, in my opinion, could boost revenues and profits and drive its stock higher.
On January 3, 2017, the company announced Radeon FreeSync™ 2 technology, which according to AMD, is the next significant milestone in delivering smooth gameplay and advanced pixel integrity to gamers. The technology will be available to consumers in the first half of 2017. (See also: Deep Learning To Drive Huge Growth For Advanced Micro Devices Inc)
Scott Herkelman, vice president and general manager of gaming, Radeon Technologies Group, AMD, explained:
"Gamers have spoken and they've made FreeSync™ the overwhelming choice and definitive industry standard for smooth, stutter-free gaming. Radeon FreeSync™ 2 technology is the first of its kind that combines HDR support with dynamic refresh rate technology, and does it in a seamless, plug-and-play manner that improves gaming quality automatically when the right content is present."
Earlier, on December 13, 2016, the company unveiled new information about its new high-performance desktop processors which will be launched in the first quarter of 2017. According to AMD, the new processors which are based on the innovative "Zen" core architecture will bring a next-level experience for high-end PC and workstation users.
AMD President and CEO Dr. Lisa Su commented:
"The 'Zen' core at the heart of our Ryzen processors is the result of focused execution and thousands of engineering hours designing and delivering a next-level experience for high-end PC and workstation users. Ryzen processors with SenseMI technology represent the bold and determined spirit of innovation that drives everything we do at AMD."
What To Expect From AMD's Earnings Report
Advanced Micro Devices is scheduled to report its fiscal fourth quarter financial results on Thursday, January 19, after market close. According to 18 analysts' average estimate, earnings per share are expected to be -$0.02. The company posted a loss of 10 cents per share in the same quarter a year ago. The highest estimate is for a loss of $0.01 a share while the lowest is for a loss of $0.03 a share, not a big difference. Revenue for the fourth quarter is expected to increase 11.9% YoY to $1.07 billion, according to 21 analysts' average estimate. There was one EPS up revision during the last 30 days. Since AMD has shown significant earnings per share surprise in its most recent four quarters, as shown in the table below, there is a good chance that the company will beat estimates also in the third quarter. (See also: Advanced Micro Devices, Inc: Is AMD Stock Set To Skyrocket After Ryzen Release?)
AMD's Financial Position
Although the company has registered losses in most of its last few quarters, its financial position has improved significantly. At the end of the third quarter, on September 24, AMD had cash and cash equivalents of $1,258 million, this compared to cash and cash equivalents of $957 million at the end of the previous quarter, and to $785 million at the end of 2015. The improvement in AMD's cash position represented an addition of $473 million in the first three-quarters of 2016. According to the company, the third quarter cash balance included about $274 million of net proceeds from recent capital markets transactions. Also, AMD's debt had decreased by about 10% from $1,633 million on December 26, 2015, to $1,473 million at the end of the third quarter.
Although AMD stock price had appreciated by 295.1% in 2016 and continued to rise on the first trading day of 2017, and the company is not expected to show a profit in the fourth quarter of 2016, in my opinion, AMD stock still has room to rise further. The reason for my belief that AMD stock could go higher is the company's strong growth prospects due to innovative new products and technologies.
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