Why Advanced Micro Devices Stock Just Popped

Advanced Micro Devices (NASDAQ: AMD) stock jumped 3.8% through 12:40 p.m. ET Wednesday after Piper Sandler analyst David O'Connor reiterated his overweight rating and $600 price target on the $523 semiconductor stock.

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Why Piper Sandler loves AMD stock

In a recent call with analysts, says O'Connor, AMD management confirmed both that demand for CPUs and GPUs continues to exceed available supply, and that AMD is ramping up production to meet demand.

The analyst expects AMD to at least meet guidance in its next earnings report (due out Nov. 3), and potentially to exceed guidance -- just as the company has beaten earnings estimates in nine of its past 10 earnings reports.

What's next for AMD?

So what are these estimates that AMD is supposed to meet or beat? According to Yahoo! Finance data, the consensus on Wall Street is that AMD will report 41% sales growth to $13 billion in its Q3 report. Improved profit margins driven by robust pricing will permit the company to grow its earnings even faster -- up 61% to $1.93 per share.

Granted, this still means AMD is a 128 P/E stock growing at 61%, with a PEG ratio over 2.0 -- which seems very expensive. The good news is that with free cash flow currently running about 31% ahead of reported net income ($8.4 billion over the last 12 months, versus $6.4 billion), the stock's price-to-free cash flow ratio is a bit under 100x right now.

For a 61% growth rate, that's still not "cheap," exactly, but it might be cheap enough to buy.

Rich Smith has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices. The Motley Fool has a disclosure policy.