AMD Inventory Surged 6% Yesterday. This is Why.

Advanced Micro Devices stock (NASDAQ: AMD) gained shut to six% in Thursday’s buying and selling and in addition stays up 6% year-to-date. This compares to rival Intel inventory which has seen its inventory decline by about 55% this 12 months. So what are a number of the developments driving AMD Inventory’s latest features?

The Fed reduce rates of interest by 50 foundation factors on Wednesday, marking the primary rate of interest reduce in near 4 years. Additionally, try our evaluation of different methods to profit from the Fed’s next move?  With the present benchmark federal funds charge standing at 4.75% to five% publish the reduce, there nonetheless stays room for the central financial institution to decrease rates of interest additional. Decrease charges are usually useful for progress sectors together with know-how, which have larger incomes potential in outer years, as decrease low cost charges enhance the current worth of future earnings. Decrease rates of interest might additionally cut back financing prices for builders of enormous knowledge facilities, doubtlessly driving up capital spending within the house, and serving to gamers like AMD which promote CPUs and GPUs for servers.  In addition to this, there have been reviews that AMD has secured the contract to design the processor for Sony’s yet-to-be-announced next-gen PlayStation 6, edging out Intel. The deal will assist AMD to proceed its long-term relationship with Sony, as the corporate designs the chip for the PlayStation 5. Though the PS6 is anticipated to launch in 2027 or past, it could possibly be a fairly large cash spinner for AMD, on condition that Sony has already shipped about 62 million PS5 consoles.

AMD has additionally seen some tailwinds from the generative AI pattern. Graphics processing models have gotten the de-facto chips for working AI-related workloads. AMD has launched new chips, such because the MI300X chip, focused at massive language mannequin coaching and inference for generative AI workloads. AMD just lately upped its steering for MI300 gross sales this 12 months to $4.5 billion and the quantity could possibly be nonetheless larger given the surging demand for AI purposes and the necessity for options to market chief Nvidia. The stronger income base and doubtlessly extra favorable product combine ought to drive AMD’s income larger. To make certain, AMD’s peer Nvidia has been the most well liked of the AI shares, rising 2.5x this 12 months. However did you that there’s a lesser-known AI identify that might supply more upside than Nvidia?

Now the rise in AMD inventory over the past 3-year interval has been removed from constant, with annual returns being significantly extra risky than the S&P 500. Returns for the inventory have been 57% in 2021, -55% in 2022, and 128% in 2023. In distinction, the Trefis Excessive High quality (HQ) Portfolio, with a set of 30 shares, is significantly much less risky. And it has outperformed the S&P 500 annually over the identical interval. Why is that? As a bunch, HQ Portfolio shares supplied higher returns with much less threat versus the benchmark index; much less of a roller-coaster trip as evident in HQ Portfolio efficiency metrics. Given the present unsure macroeconomic atmosphere round charge cuts and a number of wars, might AMD face an identical state of affairs because it did in 2022 and underperform the S&P over the following 12 months – or will it see a powerful soar?

AMD inventory has seen a significant rally over the previous 12 months. AMD trades at about 44x consensus 2024 earnings, which is a comparatively excessive a number of. Nonetheless, the continued restoration within the PC market and surge in demand from AI purposes might justify this to an extent. We worth AMD inventory at about $168 per share, about 7% above the present market value.  See our evaluation on AMD Valuation: Is AMD Inventory Costly Or Low cost? for extra particulars on what’s driving our value estimate for AMD. Additionally, try our evaluation of AMD Income for extra particulars on the corporate’s key income streams.

Whereas traders have their fingers crossed for a mushy touchdown for the U.S. financial system following charge cuts, how dangerous can issues get if there may be one other recession? Our dashboard How Low Can Shares Go Throughout A Market Crash captures how key shares fared throughout and after the final six market crashes.

[1] Returns as of 9/20/2024
[2] Cumulative complete returns for the reason that finish of 2016

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The views and opinions expressed herein are the views and opinions of the writer and don’t essentially replicate these of Nasdaq, Inc.