Stellar Q1 ’21 Earnings Could Help AMD Stock Rise 20% To Recent Highs

by Trefis Team
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Up a little more than 2x already from its low in March 2020, at the current price of $81 per share, we believe Advanced Micro Devices stock (NASDAQ: AMD) has further upside potential. The stock has risen from $39 to $81 off its March 2020 bottom, more than the S&P which increased by around 80% from its low. Further, the stock is up almost 1.5x from the level it was at before the pandemic. However, we believe that AMD stock could rise another 20% to regain its early-2021 high of $99, driven by expectations of strong demand and stellar Q1 2021 results. Our dashboard What Factors Drove 364% 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 51% jump in revenue from $6.48 billion in FY 2018 to $9.76 billion in FY 2020. Despite a 20% rise in the outstanding share count, RPS (revenue-per-share) rose 26% over this period, from $6.53 in 2018 to $8.23 in 2020.

AMD’s P/S (price-to-sales) multiple jumped from 2.7x in 2018 to 11x by 2020 end, but has since dropped to 10x. We believe that the company’s P/S ratio has the potential to rise further in the near 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 industrial activities. However, rising gaming and computing device demand, combined with growing demand for data centers, meant that AMD benefited strongly during the pandemic. Further, with Intel’s next-generation chipsets delayed, AMD stands to benefit further. This is evident from AMD’s Q1 2021 earnings, where revenue grew nearly 2x from $1.79 billion in Q1 ’20 to $3.45 billion in Q1 ’21, driven primarily by an almost 4x jump in enterprise, embedded and semi-custom revenue, from $348 million to $1.35 billion. As operating expenses rose at a rate lower than the growth in revenue, operating margins rose from 9.9% to 41.7%, a jump of more than 4x. Despite a higher effective tax rate, EPS jumped more than 3x 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. These factors will raise investor expectations further, driving up the company’s P/S multiple. We believe that Advanced Micro Devices stock can rise around 20% from current levels, to regain its recent highs of $99.

While AMD appears to be a better investment than Intel, it is helpful to see how its peers stack up. Check out Advanced Micro Devices Stock Comparison With Peers to see how AMD compares against peers on metrics that matter. You can find more such useful comparisons on Peer Comparisons.


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