The $5 Price Target on AMD is Wrong

When Citi downgraded Advanced Micro Devices (NASDAQ: AMD) last month, the call was late. The stock fell because the company issued a light outlook for the current quarter in its earnings report. Yet the $5 price target is far too negative. Investors should ignore the call.

AMD is turning its chip business around. AMD’s Jim Keller was previously involved in co-authoring the x86-64 instruction set, designing Apple’s (NASDAQ: AAPL) A4 and A5 chip, AMD’s K8, and AMD’s K7. Though Keller is now at Tesla (NASDAQ: TSLA), AMD has the ingredients with its Zen processor to win market share.

AMD’s EPYC processor will bring in even more revenue growth. The scalable architecture will suit enterprise customers, data centers, and systems requiring massive memory and computing power.

Polaris still has the potential to compete with Nvidia’s (NASDAQ: NVDA) GTX graphics cards. Vega driver optimizations will narrow the performance between the two companies. But for now, Nvidia will have the edge with the better price to performance ratio.

This quarter, AMD will start ramping up Ryzen CPUs powering notebooks. The strong relative demand for mobile computers over desktops could give AMD stronger than expected chip sales this quarter.

Takeaway

AMD stock is still expensive compared to that of Intel (NASDAQ: INTC) but it could still take off. AMD just needs to keep taking market share away from Intel.