tiprankstipranks
AMD Stock: Stellar Q3 Results, Remains Too Pricey
Stock Analysis & Ideas

AMD Stock: Stellar Q3 Results, Remains Too Pricey

Advanced Micro Devices (AMD) is a leading semiconductor company with two main segments.

The Computing and Graphics segment includes desktop and notebook processors and chipsets, discrete and integrated graphics processing units, data center and professional GPUs and development services; and the Enterprise, Embedded, and Semi-Custom segment includes server and embedded processors, semi-custom System-on-Chip products, development services, and technology for game consoles. This technology company was founded in 1969 and is based in California.

Advanced Micro Devices has a very strong balance sheet, robust growth, and delivered a solid Q3 2021 earnings report, but there is one problem that is a key hurdle now for investors, its shares are trading at a large premium. Valuation concerns are the key reason that I am bearish on AMD stock. (See Analysts’ Top Stocks on TipRanks)

Advanced Micro Devices: Latest Business Highlights

Some of the latest key business news include the following.

Advanced Micro Devices won multiple supercomputing installations including Argonne National Laboratory’s new Polaris supercomputer, there has been a partnership with Microsoft (MSFT) to bring powerful computing to users with Windows 11, powered by Ryzen processors and Radeon graphics, plus there has been the launch of new products such as the Radeon RX 6600 XT graphics card built on breakthrough RDNA 2 gaming architecture.  

Investors also got information about AMD’s 26th annual Corporate Responsibility Report, which highlighted major accomplishments from the previous year and set new goals through 2025 and 2030.

The technology company reported also that “Growing preference for EPYC™ processors resulted in the number of AMD-powered supercomputers growing 3.5x year-over-year” as “Customers across the industry continue to expand their use of AMD EPYC™ processors and AMD Instinct™ accelerators to power cutting-edge research needed to address some of the world’s biggest challenges in climate, life sciences, medicine, and more.”

Another important announcement made was a partnership with IBM (IBM).

“Our customers have a high demand for computing processing power and the new 3rd Gen AMD EPYC processors provide the high levels of performance and scalability we were looking for,” said Suresh Gopalakrishnan, vice president, IBM Cloud. “Our collaboration with AMD has helped us deliver our highest core counts and bandwidth ever available for IBM Cloud customers, to offer top market performance for today and tomorrow’s demanding workloads.”

Q3 Earnings

Advanced Micro Devices delivered a very strong Q3 2021 earnings report. Strong fundamentals and earnings are key catalysts to support the stock price reaching higher levels, but a lot of caution is suggested.

As AMD mentions on its investor relations webpage it has the “goal to build a best-in-class growth company.”

Key highlights of the Q3 2021 earnings report support this goal at present. Revenue increased 54% year-over-year, gross margin grew more by more than 400 basis points year-over-year to 48%, operating income reported was $948 million, up 111% year-over-year compared to operating income of $449 million for Q3 2020.

Net income was $923 million, up 137% year-over-year, and earnings per share were $0.75, up 134% year-over-year. In Q3, the figures for net income and EPS were $390 million and $0.32, respectively.

Focus on ESG

Advanced Micro Devices reported that its 26th annual Corporate Responsibility Report featured a strong focus on “four key environmental, social and governance (ESG) strategic focus areas that guide the company’s purpose-driven approach to high-performance computing: digital impact, environmental stewardship, supply chain responsibility, and diversity, belonging and inclusion.”

Valuation

Data from Simply Wall Steet shows that AMD stock is pricey based on its P/E Ratio (47.9x) compared to the U.S. semiconductor industry average (31.3x).

Other key financial metrics suggest that AMD stock is trading at a large premium now. AMD has a PEG Ratio of 1.3x, with a figure under 1.0 considered to be attractive, and its PB Ratio of 25.4x compared to the U.S. semiconductor industry average 4.9x.

Wall Steet’s Take

Turning to Wall Street, Advanced Micro Devices has a Moderate Buy Consensus based on 14 Buys, eight Holds, and zero Sell ratings. The average AMD price target of $141.80 represents a 5.4% downside potential.

Disclosure: At the time of publication, Stavros Georgiadis, CFA did not have a position in any of the securities mentioned in this article.

Disclaimer: The information contained in this article represents the views and opinion of the writer only, and not the views or opinion of Tipranks or its affiliates, and should be considered for informational purposes only. Tipranks makes no warranties about the completeness, accuracy or reliability of such information. Nothing in this article should be taken as a recommendation or solicitation to purchase or sell securities. Nothing in the article constitutes legal, professional, investment and/or financial advice and/or takes into account the specific needs and/or requirements of an individual, nor does any information in the article constitute a comprehensive or complete statement of the matters or subject discussed therein. Tipranks and its affiliates disclaim all liability or responsibility with respect to the content of the article, and any action taken upon the information in the article is at your own and sole risk. The link to this article does not constitute an endorsement or recommendation by Tipranks or its affiliates. Past performance is not indicative of future results, prices or performance.

Trending

Name
Price
Price Change
S&P 500
Dow Jones
Nasdaq 100
Bitcoin

Popular Articles