After consolidating at the $15 level, Advanced Micro Devices (NASDAQ: AMD) soared 5.6% on July 8 on no news. Volume surged at levels above the previous sessions, suggesting the shakeout of bears will continue. Yet at a 26.5 times forward P/E, AMD’s above-average valuations will prevent value investors from taking too big a position in the stock.
When AMD reports quarterly earnings, estimated to be on July 24, the stock may have its usual pre-earnings run-up. Speculators could profit from the heightened volatility, if the stock moves in either direction. The roll-out of EPYC, Ryzen 2, Threadripper 2, and semicustom solutions (console chips) in 2019 and beyond will all add meaningfully to AMD’s revenue growth.
Risk
As usual, AMD stock is priced imperfectly. The pre-earnings run-up heightens risks that the stock will sell off if CEO Lisa Su does not beat expectations. By comparison, Intel (INTC) trades at a discount at a 14.88x P/E and 12.41x forward P/E. Uncertainties over leadership created an entry point for value investors when the stock dipped below $50 last week.
Despite AMD’s positive momentum in the PC chip space, Intel still dominates the market. It has plenty of cash and market share. Cutting prices to maintain its relevance will hurt profit margin. Yet investors may not mind: Intel’s growth is elsewhere. This includes growth through its Mobileye and Altera acquisitions.
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