The stock of Advanced Micro Devices, or AMD, reached a record high in 2021 due to robust PC sales. Some investors might be wondering if AMD stock is a good buy now, after a recent pullback of the company's shares.
AMD has made a remarkable turnaround since 2015 when it hit rock bottom. New products and increased profitability were the main reasons for this. AMD's stock soared in the following six years.
AMD is a competitor of Intel (INTC) when it comes to the production of central processing units or CPUs for PCs and servers. AMD also competes with Nvidia (NVDA), in the market of graphics processing units or GPUs for PCs.
AMD was founded in May 1969 and went public in September of 1972. AMD switched to a fabless business in March 2009. It spun off its factories under the name GlobalFoundries.
Lisa Su, the current CEO, took over in October 2014. In 2017, she led the Santa Clara-based company to a new era, with its Ryzen processors for PCs and Epyc chips for servers.
AMD's products now have an advantage in terms of speed and performance. AMD now makes chips in a 5-nanometer size. The circuit widths of chips are measured by nanometers. This is one billionth of a meter.
Taiwan Semiconductor Manufacturing produces AMD chips.
This has allowed AMD to gain market share in both PCs and Servers from Intel. These gains have boosted AMD's stock.
Su has also been involved in several major acquisitions. AMD acquired Xilinx for $49 billion in stock, and completed the acquisition on February 20, 2022. AMD is expanding its market presence in data centers with Xilinx specialty chips. The stock of AMD rose after the news.
AMD will also complete its $1.9 billion purchase of Pensando Systems, a startup in distributed computing, by May 2022. AMD says the acquisition will improve its datacenter capabilities. AMD's stock rose 6.6% on that day.
AMD's growing opportunities were highlighted during an analyst presentation in June last year. The company stated that its total market addressable is now $300 billion compared to $79 billion in its 2020 analyst's day.
AMD forecasted improving profit margins, free cash flow and compound annual growth of 20 percent for the next 3 to 4 years.
Mercury Research reports that AMD has taken market share away from Intel for CPUs used in desktop and server PCs.
AMD's share of the server CPU market, which is a lucrative one, grew to 17.6% from 10.7% the previous year.
AMD's share in desktop PC processors sales in the December quarter was 18.6%, up from 16.2% a year ago.
AMD's share in notebook PC processor sales fell to 16.4% from 21.6% one year ago.
AMD announced new processors for notebooks, desktop computers and artificial intelligence datacenters at the CES 2023 show on January 4. The AMD Instinct Mi300 was previewed, which is the first datacenter chip that combines a CPU with a GPU to improve performance and efficiency. The AMD stock fell 3.6% on the first trading day after the news.
AMD announced the fourth-generation Epyc processors on Nov. 10. AMD's new server processors are said to offer up to 2.8x more performance than the competition and up to 54% less energy. AMD's stock rose on the news.
AMD announced its Ryzen 7000 Series desktop CPUs on August 29, the first processors with a 5-nanometer technology for PCs. These high-end processors will be aimed at gamers, content producers and other users that are looking for higher performance. The stock of AMD fell by 1.8% following the launch.
AMD released a mixed report on the fourth quarter late on January 31. The company reported better than expected results for the quarter ending December, but provided a soft sales forecast for the current quarter citing the continued weakness of the PC market. The stock of AMD jumped by 12.6% following the report which highlighted strong sales of data center chips.
AMD's adjusted earnings per share were 69 cents on sales of $5.6 billion for the quarter ending December. FactSet polled analysts who expected AMD to earn 67 cents per share on sales $5.51 billion.
AMD's earnings dropped 25% year-over-year, while its sales grew 16%. Acquisition of Xilinx boosted revenues and offset falling PC and gaming chips sales.
AMD has predicted that sales for the current quarter will be $5.3 billion, a 10% decline from last year. Analysts expected $5.5 billion for the first quarter.
AMD's first quarter report due in late April/early May could be the next catalyst for its stock.
AMD's stock plunged to a low of 1,61 per share, a level not seen in nearly 40 years, in July 2015. Then it began its incredible recovery. It reached a record-high of 164.46 before retreating.
According to IBD MarketSmith charts, AMD stock broke free from a flat basis on March 15 at a purchase point of 89.04 Before the recent sell-off of tech stocks, it reached a high of 102.43. It closed the regular session on April 6 at 92.47.
According to IBD trading principles, the 5% buying zone for its breakout is from 89.04 up to 93.49.
IBD's Relative strength rating for AMD is 94 out 99. The Relative strength rating shows how the price performance of a stock compares to all other stocks in the past 52 weeks. RS Ratings above 80 are usually associated with the best growth stocks.
AMD stock has an IBD Composite rating of 98 out 99. IBD's composite rating combines five proprietary ratings to create one simple-to-use score. The Composite Rating should be 90 or higher for the best growth stocks.
AMD is not an obvious buy at this time. It is still showing weakness, despite returning to the zone where it was before its recent breakout.
IBD Stock Checkup ranks AMD ninth out of 36 stocks in IBD's fabless chipmaker industry group. IBD's fabless semiconductor industry group is ranked third among 197 groups of industries that it tracks. IBD's trading guidelines suggest focusing on the top-rated stocks within leading industry groups.
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