AMD Stock Signals Strong Buy Ahead of Earnings

Advanced Micro Devices' (NASDAQ: AMD) stock price has retraced 100% of the AI-induced bubble, and offers a technical and fundamental entry point too good to pass up. The stock price is trading below the AI bubble launch point at the end of April, at the low end of the analysts’ target range, with no premium attached to the developments of the past two years.

Those include the combined effects of normalizing legacy markets and accelerating growth in data centers. AMD isn't NVIDIA and will likely never experience the same revenue surge. 

However, it is still a leading player in the AI data center semiconductor industry, experiencing robust demand and taking steps to secure its long-term future.

The technicals look very strong with AMD sold off to deep value levels. The market is overextended at these levels, showing support with high volume at the low end of the long-term trading range. Indicators like the MACD and stochastic are set up to send a clear entry signal, and the stochastic signal is already solid.

The MACD lags, but it is on track for a bullish crossover before the earnings release and could be a precursor to a strong post-release rally. 

A Catalyst Is Brewing for AMD’s Stock Price Rebound

Results and analysts could provide the catalyst. The analysts have reset their revenue and earnings growth expectations, but have set the bar too low. They expect revenue to decline sequentially despite demand trends in data centers and recent success in the gaming segment. 

The company recently launched the latest Ryzen update, the 9950X3D, which sold out quickly, leading to plans for increased production. Likewise, AMD’s EPYC and Instinct processors are in high demand for data centers and AI applications due to their performance, scalability, and cost, likely to underpin stronger-than-expected performance in FQ1. 

The analysts are bullish on AMD and forecast a substantial 45% upside at the consensus. However, sentiment dampened in Q1 and Q2, weighing on the stock price. A solid report and guidance are likely catalysts for analyst price target increases, which could be another catalyst for stock price increases, should they materialize. 

Valuation is another factor suggesting a robust stock price rebound is at hand. The stock is fairly valued relative to the S&P in late April at roughly 22x current-year earnings forecasts, but this is value pricing compared to the growth pace and outlook.

The company is growing earnings at a high-teens pace in 2024, with growth accelerating sequentially and expected to accelerate this year and next, then sustain a high but slowing double-digit pace for the next decade. This forecast puts the stock below a 9x valuation by 2030, and the estimates are likely too low. 

The Forward Estimates for AMD Are Too Low

The estimates are likely too low because of the potential for market share gains. AMD lost a significant share to NVIDIA despite its growth in the data center market. However, due to its processor's performance and cost factors, as well as developments like the alliance with Rapt.ai, AMD can regain and even grow its share over time. 

Rapt.ai provides a platform that maximizes and optimizes GPU workloads for AI, reducing bottlenecks and ensuring efficient use of computing power. The alliance will help unlock the full potential of AMD compute power for AI. 

The most significant risk for AMD in 2025 is tariffs. While semiconductors have escaped attention, the situation may not last, and there is a risk that levies on materials to make and goods using AMD chips will lead to increased prices for its customers.

However, the expectations are high that a trade deal will come sooner rather than later, and the company is working to alleviate supply chain issues. April news includes plans to begin production of critical processors, including the EPYC GPUs, at Taiwan Semiconductor's new Arizona facility. 

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The article "AMD Stock Signals Strong Buy Ahead of Earnings" first appeared on MarketBeat.