Advanced Micro Devices (NASDAQ:AMD) stock is breaking out once again.
After peaking at $122 in early August, AMD stock fell 18% over the past two months, dropping all the way down to $100. However, after a rocky September, the Santa Clara, California-based company’s stock is again marching higher.
In the last week, AMD stock jumped almost 10% higher and is now trading at $115 per share. The recovery in recent days has helped push AMD’s gains for the last six months to 40%. The latest rally has analysts speculating that new all-time highs could be in store for the stock in coming months.
High Demand and Low Yields
AMD’s latest breakout comes amid a broader rally in technology stocks. With Treasury yields dropping, it has sparked a run in big tech names such as Apple (NASDAQ:APPL) and Microsoft (NASDAQ:MSFT). With 10-year Treasury yields falling recently to 1.57% following a volatile September, it has helped to draw investors back into technology names that rely on low interest rates to fuel their aggressive growth. While lower interest rates aren’t the only reason for AMD stock’s current run higher, they are helping to underpin the rally. Volatile interest rates throughout the month of September contributed to the markets overall decline.
At the same time, demand is rising for the semiconductors and graphics cards that AMD designs, which are used in everything from laptop computers to video game consoles. That demand is being fueled by a global shortage of semiconductors and microchips. Chip foundry Taiwan Semiconductor Manufacturing (NYSE:TSM) produces AMD’s chips and has struggled to keep up with demand this year. At the same time, AMD is one of the most advanced chip makers today, producing 7 nanometer chips and developing new 5 nanometer ones while rivals such as Intel (NASDAQ:INTC) are still producing older 10 nanometer microchips.
Taking Market Share
AMD has staged a remarkable comeback over the past decade. In 2014, AMD was a penny stock and trading at just $3 a share. However, Chief Executive Officer Lisa Su took over the company seven years ago and turned it completely around. By focusing on advanced technology and designing cutting edge chips, Su has been able to vault AMD ahead of competitors such as Intel and gain valuable market share. In the last five years, AMD’s market share in CPUs grew to 44% from 17.5%. At the same time, Intel’s market share fell to 56% from 82.5% previously.
And between 2015 and 2020, AMD’s annual revenues more than doubled to $9.76 billion from $3.99 billion. The company’s gross margins swelled to 45% from 28%, and its net income surged to $1.58 billion from $132 million. Anyway you look at it, AMD has become a global powerhouse in the chip industry. Analysts have forecast that AMD’s revenue and adjusted earnings will grow 60% and 93% respectively this year, continuing the company’s expansion. AMD next reports earnings on Oct. 26 and Wall Street has forecast that the company will report revenues of $4.11 billion and earnings per share of 67 cents.
Buy AMD Stock On The Breakout
Bank of America recently named AMD one of its top stock picks and placed a price target on the company’s shares of $135. In a note to clients, its analyst wrote: “Our $135 price objective is based on 35 times our 2023 estimated non-GAAP EPS, which is in line with AMD’s historical median multiple and with EPS growth visibility.”
While Bank of America’s prediction is among the highest on Wall Street, analysts and institutional investors remain extremely bullish on AMD stock and its prospects.
Given the sky-high demand for its semiconductors, growing market share, and increasingly favorable macro-economic conditions, investors would be smart to take advantage of the current breakout and add shares of Advanced Micro Devices to their portfolio. AMD stock is a buy.
On the date of publication, Joel Baglole held a long position in MSFT. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.