AMD Stock Forecast: AMD Keeps Up Competition With Intel and Nvidia

 

This article was written by Julia Masch, a Financial Analyst at I Know First.

 

 

“The continued explosion of data and the need to process, store, analyze and share it is driving industry innovation and incredible demand for compute performance in the cloud, the network and the enterprise.” Bob Swan, Intel CFO and Interim CEO

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(Source: Wikimedia Commons)

AMD has had a phenomenal year. The stock has more than doubled over the past year bringing investors major gains. However, last Wednesday (October 3, 2018), AMD started the day with a dramatic drop of nearly 10% following the market opening. However, the stock recovered over the course of the day to close at only a 2% loss. AMD was the most traded stock of the day in the S&P 500  with over 189 million trades of the Santa Clara based chip maker surpassing its average trading volume of 70.7 million (the second highest average daily volume). So what prompted this drop?

Intense Competition With Intel

In the past, Intel has held a monopoly in the personal computer chip market, however, AMD has been strengthening its position in this profitable market. In September, reports came out indicating that Intel would not be able to meet the demand for its 14 nanometer (nm) CPUs. This was extremely problematic for Intel as the holiday season is approaching and orders were only expected to increase. The manufacturing struggles caused original equipment manufacturers to lower their shipment goals for the years and send Intel stock plummeting while AMD soared on this news since many thought the smaller company could capitalize on this and increase their market share.

While Intel did allay concerns by announcing the company would be able to meet demand for its annual revenue targets. However, there is still room for AMD to take advantage of the situation: if demand surpasses expectations Intel once again may not be able to meet chip demand and AMD can increase its market share. Alternatively, some consumers lot confidence when they heard the news about Intel and may still end up buying AMD chips as an alternative instead.

Whether or not Intel will meet demand, AMD has been making moves to increase its market share either way. While Intel has high demand for its 14 nm chips, AMD is ahead in 10 nm Canon Lake processor technology. Intel has delayed the release of its similar product until the holiday of 2019, giving AMD a solid edge until then with its Ryzen processor. Additionally, its Ryzen products are already in their second generation and future iterations of the product could include up to 16 cores, providing a huge jump in processing power. This technology would differentiate AMD from Intel and the more powerful processors would have major demand as CPU-intensive sectors begin utilizing this faster technology.

AMD’s Ryzen CPU chips are also a cheaper alternative to Intel’s Core chips, so consumers looking for a more economical chip will lean towards AMD. While this can lead to lower revenues per unit, this provides another important opportunity to gain market share in chips.  

Serving Quality Chips to the Server and Gaming Markets

AMD is also making strides to gain market share in providing chips to servers. In the first half of the fiscal year, AMD managed to gain an impressive 1.2% in the worldwide market for server chips, which may seem minimal but shows a positive trend for the chipmaker. These gains were thanks to the release of AMD’s EPYC chip which was targeted towards the corporate server market. EPYC sales double in sales in Q1 and many expect this upwards momentum will continue with some analysts predicting that AMD could control over 5% of this market of over 5 million units by the end of the fiscal year. AMD’s 7nm chips for gaming will debut later this year while its 7nm Rome chips will launch next year, most likely before Intel’s equivalent, and will give AMD even greater revenue. AMD’s 7nm CPUs and GPUs will be fabbed by TSMC which just taped out its first 7nm EUV chips to an undisclosed customer (most likely AMD). TSMC is now manufacturing high volumes of the first generation chips which will implement N7+ technology. Moreover, 5 nm risk production is slated for Q2 2019 which would lead to mass production a year year in Q2 2020.

Additionally, AMD has a strong hold in the gaming sector. The AMD Radeon Rx graphics are some of the best available. Moreover, AMD’s new 12-core and 24-core Threadripper 2 CPU’s will be released at the end of the month and will be an even bigger upgrade from other options on the market. This will allow AMD to make a dent in Nvidia’s large market share in gaming. The new Ryzen H Series Processors also look primed for gaming laptops and will strengthen AMD’s gaming sector position. Sales of Ryzen APU’s during Q1 2018 was one of 3 driving forces of I Know First’s Long-Term Bullish Outlook on AMD from June 10 and also accounted for 60% of client processor revenue and contributed to double-digit percentage growth in client revenue. Therefore, this newest version of the product has great potential to positively impact revenue. The final driver is the strong mining revenue from Radeon GPUs  which has remained high since Q1.

Technical Analysis

AMD has consistently been above its 200 day and 50 day simple moving averages (SMA) over the past 3 months. While the stock price is nearing the 50 day SMA, the stock should bounce back and buying near this technical indicator is a good entrance point to buy the stock.

(Source: Yahoo Finance)

Analyst Recommendations

There is no conclusive consensus on the future of AMD stock according to the analysts polled by Yahoo Finance. The majority are neutral on the stock with a buy rating with slightly more giving the stock a positive ranking than negative. Only 5 of the 31 analysts have a Strong Buy Rating on the stock. Overall though, the overall recommendation rating is a 2.7 which is slightly more positive than a 3.0 full neutral rating.

(Source: Yahoo Finance)

There is a large range of price targets on AMD ranging over $20. At the current price of $27.35 there is still a lot of upside potential for the stock to reach the highest price target of $40. In September many analysts bumped up their price targets up to $40 for AMD following the demand increases as well as Intel’s supply crunch, showing massive potential upside for the stock which is currently trading at $27.35. While some analysts are bearish on the stock, the majority of price targets lies between $30-$40 rather than the lower side of the scale.

(Source: Yahoo Finance)

Current I Know First Bullish Forecast For AMD In The Long Run

The I Know First self learning algorithm currently has a bullish rating on AMD in the long term. In the short run, this signal is bearish strong for the 1 month time horizon. However, over the long run time horizon of a year there is an  high signal of 222.64 and an also high predictability indicator of .64. This shows long term potential for AMD.

How to read the I Know First Forecast and Heatmap

Conclusion

AMD is trading at a premium, although still not at a 52 week high, following its major gain of over 100%. The short term current forecast for the stock is bearish. IMO there will be better opportunities to buy AMD as a long term investment.

However, over one year, the stock has major potential as it continues attempting to increase market share and continue competing with other chip giants like Intel and Nvidia.  The release of AMD’s newest multi-core chips on top of its 7 nm and 10 nm chips will give the company an advantage over major rival Intel. Additionally, as consumers continue shifting towards higher powered computers and tasks demand will continue growing for CPUs and AMD will continue to thrive.

Past I Know First Success With AMD

On August 5, the I Know First machine learning algorithm gave a bullish signal for AMD over multiple time horizons. Similar to the current algorithmic forecast, the strongest signal is for the long term 1 year time length. In accordance with this positive prediction, the stock is up 40.76% in only around 3 months.

I Know First subscribers received this daily stock forecast on August 5, 2018.