I am neutral on Advanced Micro Devices (NASDAQ:), as its strong growth rate, and bullish Wall Street consensus are offset by its fairly rich valuation.

Advanced Micro Devices, an American multinational corporation, has been making high-performance computing chips and graphic processors for 50+ years. (See AMD stock charts on TipRanks)

Strengths

The Santa Clara-based company has earned the clientele of Fortune 500 businesses, and state-of-the-art research facilities.

AMD was in the top two for secular cloud-driven growth among semiconductor companies, and has launched the world’s fastest computers.

Recent Results

According to AMD’s financial results for the second quarter of 2021, the company increased revenue by 99% to $3.85 billion, while earnings surged by 250% on a year-over-year basis.

High earnings from the Computing and Graphics segment drove this increase. They saw revenue of $2.25 Billion, an increase of 65% over last year, due to increased graphic processor sales and more clients.

Higher earnings were also due to higher revenue from the Enterprise, Semi-custom, and Embedded segments, which saw an 183% increase year-over-year, totaling $1.6 billion.

Net income reached $710million, up from $555 million and $157 millions in the previous quarter.

AMD anticipates that revenue will reach $4.1 billion in the third quarter 2021. This is an increase of 6% quarter over quarter and 46% annually, fueled by all-business growth.

Although Intel (NASDAQ) remains the market leader in datacenters, there is a shift to AMD and it does not appear that the company will slow down.

Overall, it would be difficult for investors to find a more efficient computer processor company.

Valuation Metrics

AMD stock does not look particularly cheap or expensive here, as it is priced at a fairly high price to normalized earnings ratio of 38.3x, but is also growing at a very strong clip.

The normalized earnings per share will increase by 93.8% and 22.6% respectively in 2021 and 2022.

Wall Street’s Take

From Wall Street analysts, Advanced Micro Devices earns a Moderate Buy analyst consensus based on 11 Buy ratings, three Hold ratings, and one Sell rating in the past three months.

With an average AMD price target at $115.92, the upside potential is 11.7%.

Summary and Conclusions

AMD is enjoying rapid growth, and has fairly strong support from Wall Street analysts. While the stock isn’t cheap, there is no reason to think it should be.

Disclosure: Samuel Smith had no position at the time this article was published.

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