AMD: New Highs, Now What?

Advanced Micro Devices (NASDAQ:AMD) touched new highs late last week and appears poised to reach $40 next. Markets are not concerned about the stock’s valuation. Instead, it joins Intel (NASDAQ:INTC) and Nvidia (NASDAQ:NVDA) on the general chip stock rally. Should investors add to or start a position in AMD?

AMD posted EPS and revenue that was in-line with consensus. Markets, though, are betting that a Threadripper CPU refresh and new Ryzen chips will push sales along. Intel is nowhere near AMD on the technical accomplishments. Yet Intel does not need to have the best technology to hold its market share. Gamers want higher CPU speeds and good hardware compatibility support. Those buying an Intel for gaming and HEDT may still do well. Conversely, AMD’s Threadripper needs expensive, less available parts.

AMD has a price disadvantage overall to Intel. Despite Intel still dominating the market, investors are betting that EPYC chips will take Intel’s server market share. The advancements the EPYC line offers cannot be ignored. Plus, enterprise customers save money buying EPYC solutions over that offered by Intel.

Valuations are high for AMD stock but on a forward basis of 34 times an EPS of $1.09 next year, the stock is a compelling trade.