The stock, at around $4, is up 6% on the year to date, but trailing the tech sector's 11% gain. When you consider the 14% gain posted by chip sector, AMD seems like a laggard, right? But that's not why we're here.
On July 18, I stepped out on a limb and recommended AMD as a solid buy. This was after the company's lower-than-expected third-quarter guidance spooked investors into selling their shares. The stock opened the following trading day at $3.72, down 18.6%. It was a gross overreaction.
At the time, I said,
"That the stock is now declining opens the door for new investors to capitalize on possibly the quickest 18% bounce they'll ever see.
Wall Street saw disagreed. It seems, however, that's exactly what's happening.
Since that recommendation three weeks ago, shares of AMD are back over $4, gaining more than 10%. It's the easiest 10% investors have ever made. Wall Street focused too much on the guidance and ignored the 24% year-over-year jump in revenue. Not to mention, management reversed last year's 9-cent loss with a 2-cent profit.
Here's the other thing: "The cat is now out of the bag," as the saying goes.
Wall Street now expects a horrible third quarter. This means all AMD has to do is match expectations for the shares to continue their uptrend. If management surprises analysts with beat and raise, these shares are likely to reach $4.80 before the year is over. From Wednesday's close, we're looking at gains of possibly 20%.
It's no longer the 1990s and growth in personal computers are not coming back -- this is despite what indicators say. The recent gains in both Intel (INTC) and Microsoft (MSFT) have been due (in part) to Microsoft ending support for Windows XP. This spurred a faster-than-expected refresh in PCs. But this will be short-lived. Rory Read, AMD's CEO understands this.