AMD’s Post-Earnings Dip is a Buying Opportunity

Tuesday, May 11, 2021 | Nick Vasco
AMD’s Post-Earnings Dip is a Buying Opportunity

Advanced Micro Devices (NASDAQ: AMD) shares rallied into the company’s first-quarter earnings release on April 27. The chipmaker then reported outstanding numbers:

  • Revenue went up 93% yoy to $3.45 billion, beating consensus estimates of $3.21 billion.
  • Adjusted earnings were 52 cents a share, comparing favorably to expectations of 44 cents a share and the 14 cents a share reported a year ago.
  • AMD increased its second-quarter guidance, and now expects revenue of $3.5 billion to $3.7 billion. Wall Street had been expecting revenue of $3.29 billion.
  • AMD also increased its full-year guidance, forecasting revenue to increase 50% yoy to $14.64 billion for full-year 2021 – that was well above consensus estimates of $13.54 billion.

There weren’t really any bones to pick with the release, and shares opened 4.3% higher on April 28. But AMD stock quickly turned lower, closing the session 1.4% lower. In the nine sessions since then, shares have dipped another 8.8%.

This looks like a classic case of “buy the rumor, sell the news.”

But the sell-off has gone too far, presenting investors with an excellent buying opportunity.

AMD Holds a Big Lead Over Intel

Intel (NASDAQ: INTC) made headlines back in March when it announced plans to increase its manufacturing capacity, with an eye on pushing up the release of its 7-nanometer processors. The company had previously disappointed investors by saying that the processors wouldn’t hit the market until late 2022 at the earliest.

AMD has taken advantage of Intel’s incompetence, growing its lead in the CPU market.

On the first-quarter earnings call, AMD CEO Lisa Su said, “Ryzen Mobile 5000 Series processor revenue has ramped twice as fast as the prior generation. We expect continued growth in 2021 as the number of notebook platforms powered by our new processors is on track to increase by 50% compared to our prior generation.”

AMD is in much better shape than Intel, but the stock trades at a significant premium.

 AMD is trading at 36.3x forward earnings, and Intel is trading at 11.8x forward earnings. Intel is actually a solid investment; if the company can get its act together, shares would have plenty of room to run. But it’s not like Intel shares should be trading at 20x forward earnings.

The AMD valuation is reasonable, but a significant percentage of AMD’s projected cash flows are far into the future. Which could be why shares have been pulling back. You see, interest rates are rising and could continue to rise. A stock is worth the present value of its future cash flows, and that present value is lower if it is discounted with a higher interest rate.

The concern is somewhat justifiable, but we’re not talking about a company that is losing money and doesn’t expect to turn a nice profit until 2027. AMD is going to generate a lot of net income over the first half of the 2020s.

How Should You Play AMD?

AMD is an excellent long-term risk-reward in the mid-$70s. And, as it turns out, the chart is giving investors the green light.

In January, AMD was pushing $100 a share, before dropping to the mid-$70s in March. A March rally petered out and shares returned to that mid-$70s range, where they again got support. The next rally lost steam when the first quarter earnings were released, as mentioned earlier.

The post-earnings dip has again taken shares down to the mid-$70s. In yesterday’s session, shares dipped all the way down to $72.75 before closing at $76.83. The closing price was just shy of the day’s highs and volume was on the higher-end – two bullish signs.

 

chart-amd

 

There is a good chance that AMD will head back towards $90 a share in the short-term. Combine that with the long-term upside, and getting into AMD today starts to makes a lot of sense.

Featured Article: What defines an oversold asset?


7 Stocks to Watch When Student Debt Forgiveness Gets Passed

Now that the Biden administration is fully in charge, student debt forgiveness has moved to the front burner. Consider these numbers. There is an estimated $1.7 trillion in student debt. The average student carries approximately $30,000 in student loans.

If $10,000 of student debt were to be canceled, there are estimates that one-third of borrowers (between 15 million to 16.3 million) would become debt-free. Of course, if the number hits $50,000 as some lawmakers are suggesting the impact would even greater.

Putting aside personal thoughts on the wisdom of pursuing this path, it has the potential to unleash a substantial stimulus into the economy.

And as an investor, it’s fair to ask where that money would go. After all, there’s no harm in having investors profit from this stimulus as well.

A counter-argument is that the absence of one monthly payment may not provide enough money to make an impact. However, Senator Elizabeth Warren referred to the effect student loans have in preventing many in the millennial and Gen-Z generations from pursuing big picture life goals such as buying a house, starting a business, or starting a family.

With that in mind, we’ve put together this special presentation that looks at 7 stocks that are likely to benefit if borrowers are set free from the burden of student loans.

View the "7 Stocks to Watch When Student Debt Forgiveness Gets Passed".


Companies Mentioned in This Article

CompanyMarketRank™Current PricePrice ChangeDividend YieldP/E RatioConsensus RatingConsensus Price Target
Advanced Micro Devices (AMD)2.0$83.82+0.3%N/A35.67Buy$97.33
Intel (INTC)2.2$55.26-1.1%2.52%12.42Hold$62.24
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