Is AMD Stock Overvalued?

In 2022, companies across the world invested a combined $92 billion in artificial intelligence (AI) technology. The emergence of AI has fueled intense speculation on how we interact with technology. It’s also spurred investors to buy into the computing companies that are shaping AI.

Advanced Micro Devices Inc (NYSE: AMD) stock has been a perennial favorite with investors and that’s pushed it up over 500% in the past 5 years.

The stock reached its height in 2021, trading at over $155 per share. But 2022 brought AMD back to earth, along with most of its tech peers. AMD share price has rallied back in 2023, rising by over 80% year-to-date.

The company’s AI focus is behind the its recent gains, and for good reason. AMD recently unveiled new platforms that will deliver high-powered processing for AI models. The company also has partnerships with tech giants like Amazon and Microsoft.

But its revenue has declined dramatically from 2022. While that’s mainly due to the decline in PC sales, it’s clear that AI profits aren’t impacting the company’s bottom line yet. That means a large part of the stock’s increases are based on speculation.

So is AMD stock overvalued?

Why Did AMD Stock Go Up?

AMD has a long history of success. The company started manufacturing semiconductors for the emerging computing industry in 1969. AMD now has over 25,000 employees across 4 business segments, and a market capitalization of $186.5 billion.

Over the years, AMD branched out into other industries, including gaming and cloud computing. But the company’s current slogan is “Together we advance AI” for a reason. A market analyst recently endorsed the company, touting AMD as one of the companies in the best position to take advantage of the AI wave.

To that end, AMD announced a recent partnership with Hugging Face where AMD will provide the hardware to drive that company’s AI models for CPUs and GPUs. The chipmaker has also partnered with Pytorch in a similar deal.

Can AMD Stock Reach $200?

Because of the heavy speculation on the company’s future, 45 analysts have given ratings on the stock. 30 analysts rate the stock as a Buy at this price point, with 4 analysts forecasting the stock will outperform the market.

There is not currently a sell rating on AMD, but there are 15 analysts who believe the stock is a Hold.

The most bullish forecast has the stock shooting up to $200, a 72.7% increase over the current price.The median forecast predicts the stock will rise over 25% over the next 12 months to $145. The most bearish forecast has the stock dropping 18% to $95 in the next year.

Does AMD Stock Have Potential?

The company released its second quarter of 2023 results on August 1, but despite revenue declines the stock’s price was largely unaffected. That’s because the year-over-year declines were expected by analysts due to reduced demand in the PC market.

The uptick in the Data Center, Embedded, and Client segments from last quarter was viewed as a sign that sales might be picking back up.

Second quarter revenue of $5.4 billion was a 18% year-over-year decline, but it still beat analysts’ estimates by $40 million, or 0.65%. Diluted EPS of $0.58 for the quarter also beat estimates by over 1%.

Due to the revenue declines, non-GAAP net income dropped to $948 million in the second quarter. Even though cash and equivalents was also affected, the company still has $3.8 billion in cash on hand.

A rising stock price and declining revenue will cause overvaluation fears, but AMD is trading at around 8 times sales. While that’s higher than primary rival Intel, it’s far lower than the leading AI player, Nvidia, which is trading at 44 times sales.

How High Can AMD Stock Go?

Even if AMD has experienced lagging sales, the company has delivered consistent and substantial revenue across each of its 4 business segments.

The Data Center segment provides processors for cloud platforms like Amazon Web Services, Microsoft, Alibaba, and more. In the second quarter of 2023, this segment accounted for $1.3 billion in revenue. The 11% year-over-year decline was a slight uptick from last quarter.

The Embedded segment develops AMD technologies for use in the automotive, healthcare, and manufacturing industries. This segment accounted for $1.5 billion in revenue in the 2nd quarter, a 16% increase from 2022.

The Client segment makes CPUs and graphics processors for consumer products like laptops and desktops. Second quarter revenue of $998 million was a 54% decline from last year. PC demand increased heavily during the pandemic, and now the market has drastically weakened. Still, the segment’s revenues increased 35% from last quarter.

The Gaming segment manufactures processors that are used in major gaming consoles made by Xbox and PlayStation. This segment brought in $1.6 billion in the 2nd quarter, down 4% from 2022. The segment also declined by 10% from last quarter.

Is AMD Stock Overvalued?

AMD is a major player in the semiconductor and processor market. The company has secured its place in the gaming, personal computing, and the growing cloud computing industry. But the company’s position in the cutting-edge AI industry has driven increased interest from investors.

The company’s revenue is down substantially since last year. Analysts consensus is that is expected due to overall declines in the industry. Still, the recent uptick in sales has many believing that PC sales will begin to pick back up.

At this price point, AMD offers an attractive opportunity for investors hoping to capitalize on the future of computing.

---

The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.