Advanced Micro Devices (AMD) is a chip champ, plain and simple. You'll have a hard time beating this buy-the-dip chipmaker - yet, sometimes the sellers take control, and it's easy to forget how financially sound this tech titan really is. I am, in case you haven't figured it out by now, quite bullish on AMD stock.
Advanced Micro Devices manufactures semiconductors, which are one of the most pervasive technology components on the planet. From cars to phones, computers and so many more of modern life's must-haves, many things need microprocessors to run, and AMD is a premier provider of these tech components.
It's funny how Advanced Micro Devices is sometimes a darling of the markets, but other times a redheaded stepchild. Indeed, deep red was the color of the day when AMD stock plunged 8% on September 13. So, is this a time to panic-sell, or an opportunity to grab a few shares for a buy-and-hold strategy? Take the time to delve into AMD's details - and don't forget to survey the latest big-picture legislation - and you'll surely find that this chipmaking champ is a diamond in the rough when times get tough.
Some Investors Are Practically Ignoring the Impact of the Chips ActTwo recent government actions are likely to have an impact on Advanced Micro Devices. One of them is negative and is more recent, so it's fresh in people's minds. The other legislative act is positive, but it seems as if investors have already forgotten about it. Yet, ignoring the impact of the CHIPS Act could prove to be a costly error.
Not long ago, the news broke that the Biden administration plans to increase America's limitations on certain semiconductor shipments to China next month. This concerns AMD as the company might soon be forbidden from exporting specified artificial intelligence computing chips to China unless licenses are obtained from the U.S. Department of Commerce.
Some skittish investors undoubtedly dumped their AMD shares after catching wind of this news. Yet, according to Reuters, "AMD did not comment on the specific policy move but reaffirmed it does not foresee a 'material impact' from its new licensing requirement."
In other words, Advanced Micro Devices doesn't seem to be in panic mode over this development. At the same time, investors shouldn't forget about another piece of legislation: The Chips and Science Act, which President Biden has already signed into law. It earmarks $52 billion toward U.S. companies that produce computer chips, while also providing billions of dollars in semiconductor-market-supportive tax credits. Oddly enough, the market seems to have forgotten about this landmark legislative act, which should provide a tailwind to AMD and to the American chipmaking sector generally.
AMD Is a Cash Flow KingEven with pro-chipmaker legislation, Advanced Micro Devices couldn't prosper as a business unless its fiscal figures made the grade. Fortunately, a deep dive into the data will uncover AMD's firm capital position - and for value investors, the time is right to put this microprocessor maker on your watch list.
Concerning AMD's cash collection, prospective investors should be pleased to learn that the company counted a record $1.04 billion in cash from operations during 2022's second quarter, marking an improvement over the prior-year quarter's $952 million. During that same time frame, Advanced Micro Devices' $906 million free cash flow indicated an increase over the year-earlier quarter's $888 million.
Of course, it's easier to pile up cash when the company's revenue comes pouring in. To that point, AMD disclosed revenue of $6.6 billion in Q2 2022, up a whopping 70% on a year-over-year basis. Analysts at Stifel likely had these impressive stats in mind when they assigned a Buy rating to AMD stock along with an ambitious $122 price target, even going so far as to declare that Advanced Micro Devices is the best bet of the three major U.S. chip companies.
That's a confident price objective, as AMD stock slumped to $77 not long ago. Yet, as we'll discuss in a moment, analysts are generally positive on Advanced Micro Devices and a price target of around $120 isn't at all unusual. Moreover, value hunters shouldn't be afraid to start accumulating the shares now, as AMD shares are close to their 52-week low of $71.60 and, believe it or not, have moved as high as $164.46 during the past 12 months.
Wall Street’s TakeAccording to TipRanks’ analyst rating consensus, AMD is a Moderate Buy, based on 19 Buy, seven Hold, and one Sell ratings. The average Advanced Micro Devices price target is $119.83, implying 55.6% upside potential.
Conclusion: Should You Consider Buying AMD Stock?If some investors have short attention spans and have already forgotten about the Chips Act and Advanced Micro Devices' blockbuster earnings report, you can use this to your advantage as an investor. If there ever was a prime time to start or add to a buy-and-hold position in AMD stock, this is certainly it. So, when there's a chip crunch in the market and fear is in the air, that's your signal to jump in and hold on as the world's demand for microchips requires a macro-level leader like Advanced Micro Devices.
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