Why Advanced Micro Devices (AMD) Stock Popped on Thursday
Key Points
An analyst increased his price target on AMD stock, which it immediately eclipsed.
Despite assigning a hold rating, the analyst is bullish on AMD's prospects.
The stock has delivered scorching gains over the past year, with a commensurate increase in its valuation.
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Shares of Advanced Micro Devices (NASDAQ: AMD) charged sharply higher Thursday, climbing as much as 8.2%. As of 1:24 p.m. ET, the stock was still up 7.3%.
The catalyst that sent the semiconductor specialist higher was bullish commentary by a Wall Street analyst.
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Playing catch-up
Bernstein analyst Stacy Rasgon remains bullish on AMD, maintaining a market perform (hold) rating and raising his price target to $265 from $235. That increase was barely 3% above Wednesday's closing price, and it's worth noting that the stock had already eclipsed that new, higher price target in early trading on Thursday.
The analyst believes that, given the current market conditions, AMD will sell fewer PC chips and more server and data center chips, which carry higher margins. Furthermore, Rasgon cited AMD's deal with Meta Platforms, inked earlier this year, as offering potential upside for the company. The pair signed a multiyear, multigeneration deal that will see Meta deploy six gigawatts of custom variations of AMD's MI450 AI chips as part of the company's data center build-out.
The analyst lags his peers in his assessment of AMD's prospects. Wall Street is bullish on AMD, with 73% of analysts who cover the stock issuing a buy or strong buy rating. Furthermore, the average price target of roughly $289 is about 12% higher than Wednesday's close, though the stock continues to move higher.
AMD has been on a tear over the past year, up 189%. However, with those gains comes a commensurate increase in its valuation, as the stock is currently selling for 104 times earnings and 41 times forward earnings. Artificial intelligence (AI) has staying power, which could continue to drive AMD stock higher well into the future.
Investors should balance the ongoing opportunity against their risk tolerance and the potential for future volatility.
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Danny Vena, CPA has positions in Meta Platforms. The Motley Fool has positions in and recommends Advanced Micro Devices and Meta Platforms. The Motley Fool has a disclosure policy.
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