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AMD Stock: Despite Valuation Concerns, Experts Are Bullish For 2022

Semiconductor stocks were on fire for most of last year. Advanced Micro Devices, one of the biggest players in this industry, was also among the most popular stocks on major Reddit forums. Here is what Wall Street is saying it expects for AMD shares in 2022.

The semiconductor industry was under a "bullish attack" for much of 2021. The iShares Semiconductor ETF ( (SOXX) - Get iShares Semiconductor ETF Report) was up nearly 40% in 2021. But even that performance was outpaced by AMD, despite strong competition from other companies such as NVIDIA ( (NVDA) - Get NVIDIA Corporation Report), Intel ( (INTC) - Get Intel Corporation Report), and Qualcomm ( (QCOM) - Get Qualcomm Inc Report).

Indeed, AMD saw its shares rise a whopping 55% over the past year. The company has also posted dizzying revenue growth of over 50% in the past five quarters, sports a consensus earnings growth of over 20% per year through at least 2024, and has a robust, nearly debt-free balance sheet.

Figure 1: AMD and SOXX performance in 2021.

Figure 1: AMD and SOXX performance in 2021.

The big question will be whether AMD will be able to maintain its sky-high growth levels in 2022. Let's see what the experts are saying about AMD stock.

Figure 2: AMD headquarters in Santa Clara, CA.

Figure 2: AMD headquarters in Santa Clara, CA.

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Wall Street remains bullish on AMD

The consensus among Wall Street experts on AMD shares is bullish. The average rating among 23 analysts offering 12-month price targets in the last three months is a “moderate buy.”

However, despite a fairly bullish outlook, the stock’s average price target is $143, which suggests a roughly 1% downside from current levels. There’s quite a bit of range in price targets, however - the highest price target is $180 while the lowest is $115.

  • The latest rating coming from Wall Street was from Rosenblatt Securities analyst Hans Mosesmann. He says AMD shares are a “buy” and offers a price target of $180. Mosemann says he feels confident that AMD will continue to maintain mobile momentum and that the company’s solid performance will be enhanced by its impressive efficiencies heading into 2022. He also mentions that AMD will be launching more than 200 premium platforms during the upcoming year.
  • Even though he believes AMD will beat guidance in Q4, highlighting notebook shipment increases as well as increases in enterprise demand, Citigroup analyst Cristopher Danely is skeptical of AMD stock. He offers a $125 price target, which he says is due mainly to an inflated current valuation and uncertainties surrounding the post-pandemic macroeconomic environment.
  • The most bearish rating comes from UBS analyst Timothy Arcuri. Although he recently raised his price target from $105 to $115, the analyst maintained his hold recommendation and expects a 20% downside from the current price. Despite their solid earnings and guidance reported in Q3, the analyst is skeptical of AMD's ability to stay ahead of Intel’s product roadmap, which he considers to be a key contributor to AMD’s share price.

Our take

AMD reported results well above estimates in 2021. An important catalyst for sustaining the rally in AMD, and the semiconductor industry overall, was buying related to hyped markets including gaming, the metaverse, and electric vehicles. All these markets have the potential to generate long-term opportunities for sustainable revenue generation, strong balance sheets, and rich gross margins for semiconductor manufacturers.

One point of contention with regards to AMD stock is its high valuation. AMD, currently trading at a P/E ratio of 44x, cannot be considered a bargain. Yet its P/E ratio is still lower than one of its main competitors, NVIDIA, which currently trades at a P/E of 90x. However, investors should bear in mind that the market can price technology companies based on their innovative and disruptive capacities rather than how many units they produce or sell.

The gaming and console markets - dominated by a few huge players such as Microsoft and Sony - will continue to spur strong growth demand for semi-custom chips. Meanwhile, Meta is using AMD chips to power the metaverse, and there are numerous uses for chips in electric and autonomous vehicles; they’re already quite present in Tesla cars. All these bullish trends mean AMD stock could keep growing strong throughout 2022, even if some think its valuation is too high.

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(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting the Wall Street Memes)