Shares of Advanced Micro Devices (AMD) - Get Advanced Micro Devices Inc. Report ticked higher this week due to bullish news from Wall Street. This was a welcome development, because AMD, along with other tech and growth stocks, had been trending lower this year.
However, while there's still some uncertainty regarding the high multiples that AMD trades at, its business fundamentals look robust. That indicates buying AMD while it's still relatively low may be a smart move.
Let's explore this idea more.
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Kumar Rates AMD as "Overweight"
On May 17, AMD rose 8% after being on a losing streak since the beginning of April. The main reason for AMD's strong performance Tuesday was the news that Piper Sandler analyst Harsh Kumar had upgraded his recommendation on AMD shares from "neutral" to "overweight."
The analyst attributed his new rating to AMD's core businesses doing well and to its long-term catalysts remaining intact. In addition, Kumar said that the acquisition of semiconductor company Xilinx in February appears to be making a solid contribution.
Investors were encouraged by Kumar's bullish rating. On May 17, AMD was the stock with the highest trading volume: 164.227 million shares.
Time for a Rebound?
Stocks in general — but especially tech and growth companies — have suffered heavily amid high inflation and supply-chain disruptions. AMD's shares have accumulated losses of roughly 35% in 2022 alone.
Wedbush tech analyst Dan Ives recently wrote that the current bear momentum in tech should not be considered a bubble. Instead, Ives said it's allowing investors to get a clearer picture of which companies have good businesses. The best thing to do right now would be to examine companies' fundamentals and buy those that look solid.
Ives also believes that strong spending will continue in some industries, such as cybersecurity, cloud, artificial intelligence, and big data, despite the market turmoil.
As a PC chipmaker with a presence in some of these industries, AMD has demonstrated that its fundamentals continue to be robust, showing growth in line with market expectations.
Thus, looking at the fundamentals, it is very likely that AMD will benefit from an eventual tech market rebound. There are other companies whose business fundamentals are substantially worse than their inflated stock prices suggest.
Should AMD's Valuation Be a Concern?
The main concern about AMD is that its valuation trades at multiples that many would consider stretched. Its current price-to-earnings (P/E) ratio is 30.5 times. This indicates a 64% difference from the industry. Rival Qualcomm (QCOM) - Get QUALCOMM Incorporated Report trades at 12.8 times, Micron (MU) - Get Micron Technology Inc. Report trades at 8.6 times, and Intel (INTC) - Get Intel Corporation Report trades at 12.7 times.
But it's worth remembering that AMD is priced at high multiples due to one thing that sets it apart from its peers: its spectacular growth reported in recent years.
There is indeed a risk that AMD has possibly front-loaded its future earnings. But it is also possible that this year's selloff may have corrected enough. At the end of last year, AMD traded at a P/E ratio of around 55 times, much more robust than the current levels.
(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 Wall Street Memes)