Wall Street's Average Price Target for AMD Implies Only 9% Upside. Is the Stock a Buy, Sell, or Hold?

Yes -- by the numbers, Wall Street is treating Advanced Micro Devices (NASDAQ: AMD) as close to fully valued going into next week's report. The average price target on the stock is $570.60, about 9% above Friday's close of $521.95.

That cushion is thin for a stock this well-liked. Of the 51 analysts covering AMD, 41 rate it a buy, 10 rate it a hold, and none rate it a sell. Nearly everyone recommends the stock. Almost nobody's math leaves room for much upside.

Additionally, published targets stretch from $320 to $1,250, so there's no shortage of disagreement about where the chipmaker is headed. But the average lands close to where the stock already trades.

Image source: AMD.

The stock's valuation multiple explains the caution. At about $522, AMD trades at about 170 times earnings and about 59 times forward earnings estimates, with a market capitalization of about $851 billion. The trailing figure reflects where the profits were over the past year. The forward one assumes the growth keeps coming.

Still, the stock sits only about 11% below its 52-week high of $584.73, so this isn't a name the market has given up on.

What earns a price like that is the data center business, and so far it has delivered. Data center revenue rose 57% year over year to $5.8 billion in the first quarter, driven by demand for the company's EPYC server processors and its Instinct line of artificial intelligence (AI) accelerators.

Management guided for total second-quarter revenue of about $11.2 billion, implying roughly 46% year-over-year growth, an acceleration from the first quarter's 38%. And non-GAAP (adjusted) earnings per share rose 43% last quarter.

The report lands Tuesday, Aug. 4, after the market closes, with the earnings call at 5 p.m. ET. To keep a 59-times-forward multiple working, data center growth likely has to keep accelerating, and earnings have to keep compounding at something like last quarter's pace for years, not quarters. That is a high bar for any company, even one executing this well.

For investors, a valuation like this implies patience. A report strong enough to push analysts' numbers higher could change the math quickly. But any stumble at this multiple could send the shares sharply lower.

That doesn't make the stock a sell -- zero analysts call it one. It does mean the price assumes the Aug. 4 report goes right. By Wall Street's own numbers, AMD is already trading about where it belongs.

Daniel Sparks and his clients do not have positions in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices. The Motley Fool has a disclosure policy.