Semiconductor stocks have been a good place to invest in recent years, but it's been a rough start to 2022. The PHLX Semiconductor Sector index has dropped 8.1% year to date, while the Nasdaq Composite has performed a bit better, down 6.1% at the time of writing.
AMD data by YCharts
Some investors are concerned about companies that depend on Taiwan Semiconductor Manufacturing for foundry services, which include many of the leading chip stocks. The Ukraine-Russia war has some investors thinking ahead to what a Chinese takeover of Taiwan would do to the supply chain,includingAdvanced Micro Devices (AMD 1.03%).
Other investors are concerned that AMD is at the end of a growth cycle and could see demand weaken over the next few years. But I believe there is a stronger argument to be made that AMD is still a stock worth holding for the long term. Here are three reasons why.
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1. AMD's valuation is reasonable and getting better
AMD has been a terrific stock to own since CEO Dr. Lisa Su took over in 2014. The stock price is up 4,500% over the last seven years,but its current valuation could look like a bargain after another five years' worth of growth in the business.
The stock's price-to-earnings (P/E) ratio currently stands at 48 based on 2021 earnings results.However, using the consensus analyst estimate for 2022, the P/E drops to 30.It gets even cheaper the further out you project growth.
Analysts expect AMD to grow earnings at a compound annual rate of 30% over the next five years.That would put AMD's earnings per share at $10.36 at the end of 2026,so investors are basically paying about 12 times what AMD could report in earnings in five years. If the stock trades at 20 times five-year projected earnings, investors could nearly double their money.
So, what is baked into analysts' growth estimates?
2. Xilinx acquisition and management's guidance point to growth
AMD just closed its acquisition of Xilinx,a leading supplier of programmable chips that help support a more connected world from the data center to the edge.The market opportunity across cloud, edge computing, and intelligent devices is estimated at $135 billion.The deal is expected to be accretive to AMD's margins, earnings, and free cash flow this year.
Other than Xilinx, AMD expects another year of strong growth. "Demand for our product is very strong, and we look forward to another year of significant growth and share gains as we ramp our current products and launch our next wave of Zen 4 CPUs and RDNA 3 GPUs," Su stated during the fourth-quarter earnings call.
Excluding revenue from Xilinx, previous guidance called for revenue to increase by approximately 31% this year to $21.5 billion. The company doesn't provide specific earnings guidance, but management expects continued improvement in AMD's gross margin,which implies that earnings should grow faster than the top line. This leads to the final reason why AMD could surprise the bears.
3. AMD's margin is expanding
One of the reasons why AMD stock has risen so much is improving profitability. AMD was unprofitable when Su stepped in, but the company's profit margin has improved to nearly 20% through 2021.
AMD Profit Margin data by YCharts
Investors are underestimating AMD's opportunity to keep expanding profit margin and fuel further growth in earnings. For example, AMD's rival Nvidiahas a profit margin of 36%. Given that wide gap and AMD's progress so far, investors should expect management to continue steering the business into lucrative markets that can improve profitability further. This explains the rationale for the Xilinx acquisition.
Management's guidance calls for gross margin to improve to 51% this year,up from 48% in 2021.It might be even higher with the addition of Xilinx, which has better margins than AMD.
The key catalyst to higher margins is the strong demand for data center processors, which is a high-margin market for AMD and where it continues to see momentum."We exited 2021 with data center revenue contributing a mid-20 percentage of overall revenue, and we expect 2022 to be another year of significant growth based on the strong customer demand signals for our current and next-generation products," Su said on the Q4 earnings call.
AMD is a solid investment
AMD is selling for a reasonable valuation relative to underlying growth. Revenue is expected to increase about 31% in 2022 (excluding Xilinx), and robust demand for high-margin processors should keep earnings growth strong, too.
Companies are using artificial intelligence to distill insights from the steady accumulation of data, which is underpinning the growing demand for advanced processors. This trend largely explains management's bullish guidance and could sustain AMD's growth longer than the bears expect.
John Ballard has no position in any of the stocks mentioned. The Motley Fool owns and recommends Advanced Micro Devices, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool recommends Nasdaq. The Motley Fool has a disclosure policy.
FAQs
Advanced Micro Devices Inc (NASDAQ:AMD)
The 37 analysts offering 12-month price forecasts for Advanced Micro Devices Inc have a median target of 100.00, with a high estimate of 200.00 and a low estimate of 77.00. The median estimate represents a -16.89% decrease from the last price of 120.32.
Is AMD a buy sell or hold? ›
The consensus among 21 Wall Street analysts covering (NASDAQ: AMD) stock is to Strong Buy AMD stock.
What is the earnings prediction for AMD? ›
Earnings vs Savings Rate: AMD's forecast earnings growth (44.7% per year) is above the savings rate (2.1%). Earnings vs Market: AMD's earnings (44.7% per year) are forecast to grow faster than the US market (15.3% per year).
What is the stock price forecast for AMD in 2023? ›
AMD Stock Price Forecast 2023-2024
AMD price started in 2023 at $64.77. Today, AMD traded at $108.27, so the price increased by 67% from the beginning of the year. The forecasted AMD price at the end of 2023 is $139 - and the year to year change +115%. The rise from today to year-end: +28%.
Can AMD stock reach $200? ›
AMD attributed the performance to its computing and graphics segments. Given AMD the demand for both the design and production of microprocessors, 70% investors told us they are confident that shares of AMD can reach the $200 mark by 2022.
What is the highest AMD stock has ever been? ›
Historical daily share price chart and data for AMD since 1983 adjusted for splits. The latest closing stock price for AMD as of May 24, 2023 is 108.27. The all-time high AMD stock closing price was 161.91 on November 29, 2021.
What is the true value of AMD stock? ›
As of today (2023-05-25), Advanced Micro Devices's Intrinsic Value: Projected FCF is $38.21. The stock price of Advanced Micro Devices is $108.27. Therefore, Advanced Micro Devices's Price-to-Intrinsic-Value-Projected-FCF of today is 2.8.
What will AMD stock price be in 2025? ›
According to our Advanced Micro Devices stock prediction for 2025, AMD stock will be priced at $ 306.61 in 2025. This forecast is based on the stock's average growth over the past 10 years.
What is the long term forecast for AMD? ›
According to the Traders Union long-term price forecast Advanced Micro Devices (AMD) can reach $314.46 by 2025, $1606.59 by 2030, $2763.41 by 2034.
Will AMD ever pay dividends? ›
Historical dividend payout and yield for AMD (AMD) since 1997. The current TTM dividend payout for AMD (AMD) as of May 23, 2023 is $0.00. The current dividend yield for AMD as of May 23, 2023 is 0.00%.
The trailing PE ratio is 465.61 and the forward PE ratio is 18.02. AMD's PEG ratio is 0.90.
...
Valuation Ratios.
| PE Ratio | 465.61 |
|---|
| Forward PE | 18.02 |
| PS Ratio | 7.15 |
| Forward PS | 5.59 |
| PB Ratio | 3.01 |
2 more rowsAMD Stock Price Prediction and Forecast
| Year | Minimum Price | Maximum Price |
|---|
| 2027 | $238.79 | $316.93 |
| 2028 | $302.36 | $365.24 |
| 2029 | $348.14 | $423.71 |
| 2030 | $409.85 | $515.62 |
6 more rowsMar 8, 2023
Bank of America's Best Growth Stocks of 2023
| Company | Forward Sales Growth Next Year |
|---|
| Alphabet (GOOG, GOOGL) | +11.8% |
| Eli Lilly (LLY) | +19.4% |
| Match (MTCH) | +13.0% |
| Progressive (PGR) | +10.9% |
6 more rowsMay 1, 2023
10 of the Best Stocks to Buy for 2023
| Stock | YTD Total Returns Through May 24 |
|---|
| Amazon.com Inc. (AMZN) | 39% |
| Walt Disney Co. (DIS) | 2.5% |
| PayPal Holdings Inc. (PYPL) | -13.2% |
| EOG Resources Inc. (EOG) | -10.6% |
7 more rowsADM Stock Forecast FAQ
Archer Daniels Midland has 33.99% upside potential, based on the analysts' average price target. Yes, go to the Analysts' Top Stocks tool to see stocks with a Strong Buy or Strong Sell analyst rating consensus, according to the top performers.
What is the volatility of AMD stock price? ›
Advanced Micro Devices, Inc. (AMD) had 30-Day Historical Volatility (Close-to-Close) of 0.5180 for 2023-05-11.
...
Historical Volatility (Close-to-Close) (30-Day)
| Volatility Metrics |
|---|
| Historical Volatility (Close-to-Close) | 0.5180 |
|---|
| Put-Call Ratio (Open Interest) | 1.5048 |
| Forward Price | 97.54 |
| Call Breakeven Price | 106.32 |
10 more rowsIntel CPUs usually offer better performance and value for gamers than AMD processors. When calculating complex AI in a video game, you need higher instructions-per-clock (IPC) and single-thread clock speed, areas where Intel shines.
What is AMD top selling product? ›
AMD's Ryzen 7 5800X3D is now AMD's best-selling processor, and demand is outstripping supply | OC3D News.
What was the initial stock price of AMD? ›
On September 27, 1972, AMD issued 620,000 shares of common stock (500,000 by the company and 120,000 by selling shareholders), over-the-counter, at $15.50 per share (or, $0.57, split adjusted 27:1 for the lifetime of the stock) raising a total of $7.5 million it its first public offering.
What is the outstanding shares for AMD? ›
Number of shares outstanding as of May 2023 : 1,613,000,000
According to AMD's latest financial reports and stock price the company's current number of shares outstanding is 1,613,000,000. At the end of 2022 the company had 1,613,000,000 shares outstanding.
AMD's competitors and similar companies include Intel, Qualcomm, NVIDIA, Synopsys and STMicroelectronics Italia. Advanced Micro Devices (AMD) is a semiconductor company developing computing and visualization products. Intel is a company that develops and manufactures microprocessors and other semiconductor components.
What is the float of AMD stocks? ›
As of today, Advanced Micro Devices's float shares is 1,601.85 Mil. Advanced Micro Devices's total shares outstanding is 1,610.36 Mil. Advanced Micro Devices's float percentage of total shares outstanding is 99.47%.
What will Nvidia be worth in 5 years? ›
The NVIDIA stock 5-year forecast from AI Pickup was bearish, with the website's technical analysis, predicting that the share price could average $42.42 in 2027, down from $117.89 in 2022, $106.73 in 2023 and $78.82 in 2025.
What are the best stocks to invest in now? ›
10 Best Stocks to Buy Now—May 2023
- U.S. Bancorp USB.
- Taiwan Semiconductor Manufacturing TSM.
- GSK PLC GSK.
- Wells Fargo WFC.
- Roche Holding RHHBY.
- Comcast CMCSA.
- International Flavors & Fragrances IFF.
- Anheuser-Busch InBev BUD.
According to our Advanced Micro Devices stock prediction for 2025, AMD stock will be priced at $ 306.61 in 2025. This forecast is based on the stock's average growth over the past 10 years.
What will AMD be worth in 2025? ›
What will the AMD price be in 5 years and 10 years – forecast by years
| Year | Price in the middle of the year | Price at the end of the year |
|---|
| 2024 | $261.83 | $349.1 |
| 2025 | $297.94 | $397.25 |
| 2026 | $451.43 | $601.9 |
| 2027 | $722.28 | $963.04 |
8 more rowsAccording to the latest long-term forecast, retrieved on March 2, Nvidia's price will climb above $1,000 in 2028. By the end of 2030, NVDA is predicted to hit $1,195, a 426% increase from today to the year's end if the forecast is realized.
