Advanced Micro Devices (NASDAQ:AMD) stock rode out the novel coronavirus. But, after seeing shares rebound from their March sell-off lows, what’s next for the CPU and GPU powerhouse? Right now, shares hold steady between $50 and $55 per share. Yet, what factors could move the needle? Conversely, what risks could send shares lower?
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On one hand, you have several catalysts still in motion. Namely, strong end-user demand. But also, the company’s continued success grabbing market share from rivals Intel (NASDAQ:INTC) and Nvidia (NASDAQ:NVDA).
On the other hand, shares could easily dip from today’s price levels. Valuation-wise, AMD remains “priced for perfection.” That is to say, much of its potential is already priced into shares.
So far, the company has been able to keep investors happy. With the pandemic in a tailwind, not a headwind, strong growth continues. Yet, if the outbreak further impacts the economy, demand could fall, derailing the growth train for this “story stock.”
With this in mind, buying today doesn’t look like a winning move. If you own it, it may be time to sell. If you haven’t bought in yet, it may pay to stay away.
Why AMD Stock Could Still Head Higher
Admittedly, I’ve been an Advanced Micro Devices “permabear.” Yet, I can see why many continue to be highly bullish on this “too hot to touch” name.
As InvestorPlace’s Chris Lau wrote Jun 26, strong gaming demand and market share growth remain major factors in this company’s corner. The “stay-at-home” economy has been a boon for the video game industry. And that’s a massive tailwind for the company’s GPU business.
Regarding market share growth, the company continues its rivals’ lunch. As this commentator noted, AMD’s Ryzen and EPYC product lines continue to gain at Intel’s expense. With GPUs, the company is gaining ground against Nvidia.
Shares could move higher on this factor alone. But, there are other potential needle-movers in the tank. With the company on the right side of future trends like artificial intelligence, it’s easy to see why many believe the growth train could continue through the 2020s.
Yet, everybody knows that AMD has many things going for it. That’s why analysts like RBC Capital Markets remain highly bullish on the stock, giving shares a $66 per share price target.
However, things could turn on a dime. If the pandemic starts to hurt tech like it has done to hard-hit service industries, shares could fall, as the growth story comes to a halt.
How A Dip Could Be Just Around The Corner
Granted, there are several reasons why AMD stock could rise even higher. On the other hand, there are an equal number of reasons why shares could dip from today’s prices.
Firstly, valuation. With a forward price-to-earnings (P/E) ratio of 48.9, shares remain richly priced.
Sure, Nvidia stock trades at a similar forward multiple (45.3). But, that doesn’t tell us much whether shares are overvalued or not. With their strong growth prospects, both names trade at a tremendous valuation multiple to “dinosaur” Intel.
Yet, it’s tough to say its growth alone driving the rich multiples for both names. Or, if FOMO, along with momentum traders, are what’s driving their respective high valuations.
It’s tough to call the top in overall markets, let alone individual stocks. But, it’s easy to see that AMD stock is topping out, and that there’s little share price upside left on the table.
But plenty of downside. As InvestorPlace’s Mark Hake wrote Jun 16, demand could cool off in the second half of 2020. If a recessionary environment continues, demand for electronic devices, gaming consoles, and cloud computing could taper off. And that will lower demand for AMD’s chips by its end-users.
That’s not to say sales are going to contract. But it could mean growth takes a breather. And, if the company falls short of its 20%+ growth projections, expect shares to fall substantially lower from where they sit today.
Get Out of AMD Stock Before The Tides Turn
With shares treading water for nearly three months, Wall Street can’t decide if this stock should head higher or lower. But, weighing catalysts against risks, it seems shares are more likely to tumble than rally higher.
The easy money’s already been made by those who got in early. Those who bought in at today’s high valuation? They could wind up holding the bag.
Bottom line: if you bought at lower prices, it’s time to cash out of AMD stock. If you haven’t jumped in yet? Steer clear for now.
Thomas Niel, contributor to InvestorPlace, has written single-stock analysis since 2016. As of this writing, Thomas Niel did not hold a position in any of the aforementioned securities.
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