AMD Stock Price Prediction: Can It Rebound to $150? (NASDAQ:AMD)
DISCLAIMER: This notice is intended for US recipients only and, in particular, is not intended for, or intended to be relied upon by, UK recipients. Any information or analysis contained in this note does not constitute an offer to sell or solicitation of an offer to purchase securities. Nothing in this rating is intended to be investment advice nor should it be relied upon in making investment decisions. Cestrian Capital Research, Inc., its employees, agents or affiliates, including the author of this note, or related persons, may hold a position in stocks, securities or financial instruments referenced in this note. Any opinions, analyzes or probabilities expressed in this note are those of the author as of the date of publication of the note and are subject to change without notice. Companies referenced in this note or their employees or affiliates may be clients of Cestrian Capital Research, Inc. Cestrian Capital Research, Inc. values both its independence and transparency and does not believe this presents a conflict of interest. significant potential or affects the content of its research or publications.
Do not click Off
Tech stocks. Memory? High growth, high valuations, high beta to the market, they can make your year or break your heart, sometimes in a week. Over the past six months, the market has abandoned technology as if we were going back to the Middle Ages. Sell semiconductors – buy mechanical presses. Sell software – buy oatmeal. Like that.
The only thing you know about technology is just when you think it’s all over is when it comes back. Happened in 2002-2003, Happened in 2010-2012, Happened in the first quarter of 2019 after the Fed last tried to restore your parents’ monetary orthodoxy, Happened in second quarter 2020 when the world realized you can do a lot on Zoom (ZM) these days as it happens – oh and also you’re going to need a new laptop and a new phone to that everything is working properly. And a secure home router.
As you know, at the heart of all technology platforms are silicon semiconductor devices. And the fundamental building blocks of semiconductors include DRAM (for which look to Micron (MU)), CPUs (Intel (INTC), AMD), GPUs (Nvidia (NVDA), AMD), and then a host other devices – RF (Qualcomm (QCOM)) and so on. Semiconductor companies offer less predictability in their revenue or earnings than subscription software companies, so they can be a lot more queasy on earnings day than your worldly Microsofts, but when operate- they ? They Course.
AMD (NASDAQ: AMD) has been a huge achievement in recent years, starting with the installation of Lisa Su as CEO in 2014. Su took an equally run company with crumbling finances and turned it into a viable second player in the oligopolistic sectors of CPUs and GPUs. Here’s what’s happened since Su took over. (And became a hero to techs everywhere, hence the T-shirt, which yes is something you can buy.)
Despite the excellent fundamentals, the stock has nevertheless been hit hard lately and the question is: is this a good time to buy this stock?
Key AMD Stock Indicators
Let’s look at the fundamentals of the business first.
Revenue growth has been huge for a long time. In the March 2022 quarter, growth stood at +65% over twelve rolling months. Gross margins have increased and stand at 49%. EBITDA margins (before stock-based compensation) have also steadily increased under Su’s leadership and now stand at 29% on a TTM basis. Capital expenditures are low as a percentage of revenue and working capital is fairly well managed, resulting in an unleveraged pre-tax FCF margin of 20% on a TTM basis. Finally, the balance sheet is very secure with $4.8 billion in net cash. So…65% growth with 20% cash flow margins, with ample cash resources? Fundamentals, double as good.
How high could AMD’s stock go? Could it reach $150?
At the most recent close, AMD stock stood at $91. The stock peaked at $164 in December last year, a 45% selloff off highs against some software names currently seems almost tame. On the chart, as we’ll see in a moment, AMD seems to have bottomed out and could even hit new highs in a year or two. Optically, however, the market still doesn’t like stocks whose valuation multiples look like this:
37x cash flow or 7.6x revenue is not a good idea right now, especially with a 49% gross margin. Additionally, AMD is more at risk from the slowing economy than many tech names. Any significant slowdown in consumer electronics purchases or (worse) restraints on enterprise data center capex will hurt AMD’s revenue growth – and if growth holds, good luck sustaining those multiple. So the downside risk is definitely there – macro factors are slowing earnings growth, which is compressing valuation multiples and before you know it, it’s a $65-70 stock. As always, if you own or plan to own AMD, consider using stop-losses to protect yourself in this highly volatile market.
What about the upside? Let’s go to the graph. You can open a full-page version here.
AMD has put in a clear and classic wave pattern since the lows of 2018.
The up wave 1 ends just before the Covid crisis, followed by a down wave 2. Most of the stocks we cover made a 0.786 retracement to complete the Covid lows. AMD falls just at the 0.5 retracement of the previous wave 1, which means we can expect a deeper correction in wave 4.
Wave 3 peaks just above the 2.618 extension, then wave 4 falls, so far at the 0.618 retracement of wave 3 – almost perfectly. You can see that the support he found there is also where a “volume shelf” applies, i.e. a price area where previously a high volume of stocks has changed hands. These levels often provide support and resistance.
So far, it looks like AMD has found a bottom around that 0.618 Fibonacci retracement level of $85, plus or minus a few dollars per share. And if confirmed, that would mean the stock stabilized around the same time as the S&P500. strength found support. (As of this writing, SPY maintains the critical level of $380/share.)
We believe that AMD box make new highs, let’s call it over $165, within 12 to 18 months. The fundamentals should of course hold, and that would require a reversal in market sentiment. It may be closer than many think, with the darkest day being just before dawn and all that.
If you intend to go for a lofty target for new highs, consider using stop-losses and even trailing stops, because it’s actually the Moon you’re aiming for there. It can be done. We can point to a solidly constructed chart analysis that indicates it can be done (just plot a standard 5 wave on the chart above…in other words, this says the stock “should” reach a new high if the model from the last few years continues to play tapping.)
If you’d like to try trading AMD rather than investing in the stock, we’ll point out the Fibonacci levels above the stock right now as places where you might want to profit. Again, assuming the fundamentals hold and we see a reversal in market sentiment, you can reasonably expect the stock to hit $100, then $115, and consider taking some profit or raise your stop if this happens.
Is AMD stock a buy, sell or hold?
We rate AMD at “Storage” in our subscription service and repeat that view here. Why not “buy by shouting”? Because we think caution can be rewarded here. If you’re buying small and the stock is going up soon – let’s say in sympathy with any positive earnings reaction from Nvidia this week – then you have plenty of overhead to keep adding upside. If it explodes with another market drop? Your stops can save you until you decide to try again on a better day. For the purposes of this article, we’ll call this a purchase, but please read this in the context of the above.
Cestrian Capital Research, Inc. – May 25, 2022