I am neutral on Advanced Micro Devices (NASDAQ:AMD), as its strong growth rate, and bullish Wall Street consensus are offset by its fairly rich valuation.
Advanced Micro Devices is an American multinational company that has been manufacturing high-performance computer chips, graphic processors, and visualization technologies for more than 50 years. (See AMD stock charts on TipRanks)
Strengths
The Santa Clara-based company has earned the clientele of Fortune 500 businesses, and state-of-the-art research facilities.
AMD was in the top two for secular cloud-driven growth among semiconductor companies, and has launched the world’s fastest computers.
Recent Results
According to AMD’s financial results for the second quarter of 2021, the company increased revenue by 99% to $3.85 billion, while earnings surged by 250% on a year-over-year basis.
The increase was driven by high earnings in the Computing and Graphics segments, which showed revenue of $2.25 billion, up 65% year-over-year, due to a higher number of graphic processor sales and increased clients.
The Enterprise, Embedded and Semi-custom segments also contributed to the higher earnings, showing a 183% year-over-year increase in revenue that totaled $1.6 billion.
Net income was $710 million, compared to $555 million in the first quarter of 2021, and $157 million a year ago.
For the third quarter of 2021, AMD expects revenue to be $4.1 billion, showing an increase of 6% quarter-over-quarter and 46% year-over-year, driven by growth across all businesses.
Although Intel (NASDAQ:INTC) has remained dominant in the datacenter market, the industry is now seeing a significant shift towards AMD, and the company does not seem to be slowing down.
All in all, investors would be hard-pressed to find a better-performing computer processor company.
Valuation Metrics
AMD stock does not look particularly cheap or expensive here, as it is priced at a fairly high price to normalized earnings ratio of 38.3x, but is also growing at a very strong clip.
Normalized earnings per share are expected to increase by 93.8% in 2021, and 22.6% in 2022.
Wall Street’s Take
From Wall Street analysts, Advanced Micro Devices earns a Moderate Buy analyst consensus based on 11 Buy ratings, three Hold ratings, and one Sell rating in the past three months.
The average AMD price target of $115.92 puts the upside potential at 11.7%.
Summary and Conclusions
AMD is enjoying rapid growth, and has fairly strong support from Wall Street analysts. The stock is not extremely cheap but is likely not overvalued here either.
Disclosure: At the time of publication, Samuel Smith did not have a position in any of the securities mentioned in this article.
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