This is not investment advice. The author has no position in any of the stocks mentioned. Wccftech.com has a disclosure and ethics policy.
AMD has been making headlines with its latest round of third generation Ryzen CPUs and Radeon graphics cards powered by Navi chips. Thanks to this refreshed product lineup, one analyst believes AMD shares are going to climb even further.
Instinet raises prices target of AMD
David Wong at Nomura Instinet apparently thinks these new products, coupled with upcoming EPYC "Rome" parts are enough to boost AMD to even higher levels on the stock market.
We think that the new CPUs and APUs will help AMD sustain its desktop processor market share momentum, driving unit market share from about 17% in the March-2019 quarter to 20% or better by the December-2019 quarter
-David Wong, Instinet
Wong believes that the Ryzen 3xxx family of products, along with new Radeon product launches will be enough to allow AMD to continue to grow its market share against respective competitors Intel and NVIDIA. A move from 17 percent to 20 percent in desktop CPU shipments in half a year will be seen as very positive news for the chipmaker.
Of course, AMD's fortunes rely not only on market share but on its gross margins which have long been a weakness for the firm. Years of deep price cuts used to entice consumers into purchasing its older Bulldozer-derived CPUs weakened its margins. Wong believes ASP, a major factor in AMD's margins, will continue to grow. In a note to client investors Wong continued, "We expect that AMD will be able to hold it's desktop processor ASP at close to $90, or higher, through 2019, up from close to $50 prior to 2017."
In short, AMD will be able to charge more for its Ryzen 3xxx series, while continuing to grow market share, a "win-win" in the eyes of investors.
Analyst scorecard: General optimism for the future
Shares of Advanced Micro Devices is up 75 percent on the year, leading both the semiconductor and greater technology sectors in performance YTD. Let's take a look at what some analysts believe is in store for the stock. David Wong as Instinet raised his price target from $33 to $37 today.
- David Wong @ Namura Instinet: "Buy" PT $37 reiterated today
- Mitch Steves @ RBC Capital: "Buy" PT $43 reiterated last month
- Vivek Arya @ Merrill Lynch: "Buy" PT $40 reiterated last month
- Joseph Moore @ Morgan Stanley: "Hold" PT $28 reiterated last month
- Ross Seymore @ Deutsche Bank: "Hold" PT $25 reiterated two months ago
- John Pitzer @ Credit Suisse: "Hold" PT $25 reiterated two months ago
Currently of analysts that have initiated coverage, 10 rate AMD as a "buy", with 9 offering a "hold" rating.
Shares of AMD have outperformed the market in the last two days. Monday was an especially good showing as most tech stocks were down for the day, yet $AMD gained two percent. Today shares rose three-and-a-half percent to $33.15 at market close.
AMD Stock versus AMD Call Options
A quick note on derivatives. It's well known that call and put options can multiply gains (and losses) versus going long or short on stock. Let's take a quick look at an example. On June 25th shares of $AMD were available for $28.86. Today prices reached north of $33 for several hours, so let's use $33 as our sale price. Shares of the company purchased and sold between June 25th and today would have yielded a trader 14.3 percent return. Not bad for letting your investment sit for just a few weeks! Now let's take a look at options.
Call options are available in weekly or monthly expirations for most large companies. Let's take July '19 call options as our example. A prospective buyer may have wanted to give time for Ryzen and Navi news to potentially boost the stock, which indeed has happened now. On June 25th, $AMD July 19th, 2019 $32 Calls were trading around 60 cents per contract. Since the stock moved high enough to pull these calls from "out of the money" to "in the money" (because at $33 AMD is trading higher than the calls $32 strike price), the options spiked in trading price. Just how much you ask?
Those same contracts that cost 60 cents on June 25th were selling today for over $1.50 per contract during most of the afternoon. So our options in this example returned 150 percent, versus the underlying stock's 14 percent gain. A bit over a 10x better return! Of course, had AMD lost money, or even trade sideways, this would be a completely different story and in hindsight, it's easy to look at examples like this and say options are a great buy. Either way, those trading bullish AMD securities have been enjoying the last few days!