New Price Target for AMD as Apple, Nvidia See Tariff Boost
Advanced Micro Devices could be in line for the kind of boost seen by the likes of Apple and Nvidia.
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I was fairly active ahead of the opening bell on Monday morning. That is actually my occupation. I may write "Market Recon" bright (I mean dark) and early. This morning, I also wrote a follow up piece to my target price move on Palantir Technologies PLTR last week after that firm's deal with NATO was announced this morning.
I traded off of Goldman Sachs GS earnings. I initiated JP Morgan JPM. I traded Berkshire Hathaway BRK.B, Wells Fargo WFC and Lam Research LRCX, but I also traded a stock that I consider to be an old friend. I left a few of those shares in place, as I decide whether or not to actually remain long and re-initiate Lisa Su's Advanced Micro Devices AMD.
That stock sure did make me some nice dough back in its "heyday." You missed the bottom, Sarge. That's alright. What matters is if I should own it now. Know how often I actually nail a precise top or bottom? Close to never. It's happened. Never on purpose. We know the recently announced exemption (even if temporary) on reciprocal tariffs for tech imports is going to help the likes of Apple AAPL and AMD competitor Nvidia NVDA, but how about AMD itself?
AMD Earnings
AMD is expected to release the firm's first quarter financial results on or about May 6.
Wall Street expects to see an adjusted EPS of $0.94 on revenue of $7.11 billion. That compares quite well to the year-ago comps of $0.62 on $5.47 billion, inferring year-over-year earnings growth of 51.6% on revenue growth of 29.9%.
Su had guided investors towards revenue of $7.1 billion for the quarter. This is also after 17 of the 26 sell-side analysts that I can find that cover this name actually revised their estimates for AMD lower since the start of the first quarter. The gross margin number that AMD needs to show in order to impress Wall Street is probably anything above 54%.
The stock has continued to trade at roughly 20-times forward-looking earnings, which is just slightly above where the S&P 500 is on this metric. Operating and free cash flows have remained very strong, and the balance sheet remains fortress-like. Remember, AMD does a decent amount of business in China, and sells the MI308 China-compliant chips there, competing directly against Nvidia to Chinese hyperscalers.
Additionally, AMD's chips, while designed in the United States, are primarily manufactured by Taiwan Semiconductor TSM in Taiwan. Even if sold here in the U.S., they are imports. That said, ISM does have facilities in Arizona and is building those facilities out. AMD is looking to move some of its chip production to those Arizona locations.
Moving Forward
While AMD has badly lagged Nvidia in the AI and data center businesses, its businesses are more diversified than are Nvidia's. While Nvidia has enjoyed much greater sales growth and higher gross margins than AMD has in recent years, a rough 88% of Nvidia's business is now concentrated in those fields. Due partially to AMD's lack of competing better against Nvidia for those customers and AMD's strong position in its legacy businesses, AMD's revenue exposure to the AI/data center business is just about 49%. More PCs, more gaming, etc.
My Thoughts on AMD Stock
It may be time to start legging back into AMD, but not so aggressively. We don't know where capital flows are going to go, and tech could take a few more lumps before it gets where it is going and if there is a recession, all bets are off. That said, let's look at the chart.
Readers will see a falling-wedge pattern of bullish reversal still under development that goes back to last September. I can't tell how close this pattern is to testing a breakout, but I do think it's time to start paying attention. Relative strength improved and is nearing a neutral reading. The daily MACD is still postured bearishly, but the histogram of the nine-day EMA is approaching the zero bound as the 12-day EMA appears ready to attempt a bullish crossover of the 26-day EMA.
As the stock wrestles with its 21-day EMA, which could bring the swing crowd onboard, I see the 50-day SMA (currently $103.70) as pivot. That would put my target price at a rough $124, with a bull case for $130.
With the 200-day SMA currently up at $134, this would allow for the target to be achieved without running into any potential technical resistance that might be waiting at that level.
At the time of publication, Guilfoyle was long AMD, GS, JPM, WFC, LRCX and PLTR equity.
