Here’s Why Advanced Micro Devices Stock Could Cross $100
Up more than 2.3x from its low in March 2020, at the current price of $91 per share, we believe Advanced Micro Devices stock (NASDAQ: AMD) has further upside potential. The stock has risen from $39 to $91 off its March 2020 bottom, much more than the S&P which increased by around 95% from its low. Further, the stock is up almost 1.7x from the level it was at before the pandemic. Despite this, we believe that AMD stock could rise almost 10% to set fresh highs above $100, driven by expectations of strong Q2 2021 earnings amidst continuing demand growth. Our dashboard What Factors Drove 394% Change In Advanced Micro Devices Stock Between 2018 And Now? has the underlying numbers behind our thinking.
The stock price rise since late-2018 came due to a 76% jump in revenue from $6.48 billion in FY 2018 to $11.4 billion on an LTM basis. Despite a 22% rise in the outstanding share count, RPS (revenue-per-share) rose 45% over this period, from $6.53 in 2018 to $9.50 currently.
AMD’s P/S (price-to-sales) multiple jumped from 3.5x in 2018 to 11.4x by 2020 end, but has since dropped to 9.6x currently. We believe that the company’s P/S ratio has the potential to rise further in the medium term on expectations of continuing demand growth and a favorable shareholder return policy, thus driving the stock price higher.
Where Is The Stock Headed?
The global spread of coronavirus and the resulting lockdowns in early 2020 affected semiconductor demand and manufacturing activities. However, rising gaming and computing device demand, combined with growing data center demand, meant that AMD benefited strongly during the pandemic. Further, with Intel’s next-generation chipsets delayed, AMD has seen a further rise in demand for its products. This is evident from AMD’s Q1 2021 earnings, where revenue jumped nearly 2x from $1.79 billion in Q1 ’20 to $3.45 billion in Q1 ’21. As operating expenses rose at a rate lower than the growth in revenue, operating margins more than quadrupled from 9.9% to 41.7%. Despite a higher effective tax rate, EPS more than tripled from $0.14 to $0.46 over this period.
Additionally, with the lockdowns being lifted worldwide and manufacturing capacity stepping up to pre-pandemic levels, we believe the company will see further revenue and margin growth in the medium term. We expect AMD’s upcoming Q2 2021 earnings to confirm this and we believe this will raise investor expectations further, driving up the company’s P/S multiple. We believe that Advanced Micro Devices stock can rise around 10% from current levels, to set new highs above $100.
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