A mini-rally in the world of semiconductors makes many on Wall Street sit up and take notice. After logging a horrible 2022 with its seemingly endless supply of bad news, there’s been a decent lift across the board, particularly with some. Advanced Micro Devices, Inc. (NASDAQ: AMD) is one such semiconductor stock that’s gotten off to a great start, and there are several signs that this will continue into the rest of the quarter. Let’s jump in and take a look at the bull thesis.
Industry Tailwinds
On Monday of this week, the team over at Barclays upgraded AMD shares based on a brightening outlook for the industry overall. Also upgraded in the same move were Qualcomm Inc (NASDAQ: QCOM) and Seagate Technology Holdings PLC (NASDAQ: STC), indicative of what many are calling the start of a fresh rally for semiconductors.
In a note to clients, analyst Blayne Curtis wrote that "it would have been nice if the group got as cheap as we have seen in other downturns, but we underestimated the amount of money that wanted to move into semis, and we don’t see the group testing October lows."
Investors received the move well, with AMD shares jumping 7% to put them up close to 30% over the past fortnight. Curtis sees increased cloud spending in the second half of the year and strengthening economic conditions in China as two key pillars that should underpin the sector's strength.
When you consider that shares of AMD alone have fallen as much as 70% from their 2021 highs, it’s easy to understand why investors are so keen to get back in at what might be a generational low.
The bullish outlook echoed that of KeyBanc Capital Markets, who went so far as to name AMD as one of their top picks for the year ahead last week. John Vinh and the team there believe AMD has captured a ton of market share from Intel Corporation (NASDAQ: INTC), which it’s unlikely to give back.
And even though they expect revenue from consumer-facing markets like PCs and smartphones to drop in the years ahead, the upside from cloud-related revenue should more than offset this.
In addition, against some of its peers, AMD shares still look expensive, notwithstanding the fall they’ve endured. Their price-to-earnings ratio of 45 could make investors think twice, especially when Qualcomm’s is barely 11 and Intel’s is only 9. At the same time, AMD’s shares are the best-performing of this trio.
30% Upside and Still Going
From last October’s low of around $55, AMD shares have tacked on an impressive 30% and look set to break above near-term resistance at $80. Qualcomm’s are only up 20% over the same timeframe, while Intel’s are up 18%. Any fresh position in AMD won’t come without its risks however.
This is still a very beaten-down stock, and investors couldn’t get rid of shares quickly enough as the economic outlook darkened over the past year. And any sign of a return to this uncertainty or a fresh uptick in inflation, is sure to dampen the level of optimism. But on the whole, however, it’s fair for us to target what Bank of America is calling a ‘soft landing’ for semiconductors this year.
Marketbeat’s MarketRank tool has shares rated a Moderate Buy, with about a 30% upside still to be realized from current levels. Were they to hit that in the coming weeks, it would have them trading back in the triple digits, and they’d have completely broken the downtrend that haunted them in 2022.
We’ve written a lot about semiconductor stocks recently, like with Qualcomm here and NVIDIA Corporation (NASDAQ: NVDA) here. Among these well-known names, AMD is arguably the most attractive, and we expect shares to continue rallying into the year ahead.
