AMD posted another strong earnings report at the end of October, which caused several analysts to raise their near-term price targets. The highest price target is $180, with most analysts bullish on the stock. However, one downgraded the stock from outperform to market perform on valuation concerns.
Northland Securities analyst Gus Richard believes AMD's growth is going to slow next year. He bases this view on the coming end to the chip shortage, increasing inventory, and higher operating expenses to support new chip products.
Other analysts agree, as the consensus estimate has AMD growing revenue by 18.5% in 2022, down from 65% in 2021. Earnings per share are expected to double to $2.64 this year, but should slow to 25% growth next year to reach $3.32, although this level of growth on the bottom line could still be enough to justify AMD's valuation.
With the stock hitting new highs this week and trading at a price-to-earnings ratio of 41 based on next year's earnings estimate, investors are betting that AMD can sustain high growth for several years, and that it can continue to hold on to its market share gains against Intel (INTC 2.87%) in the x86 chip market.
The need for data centers and higher-speed processors is certainly not going away. AMD has emerged as a leading supplier for this booming market under CEO Lisa Su, who has demonstrated exceptional business skills transforming AMD into a chip powerhouse in just seven years.
AMD is serving massive markets across data centers, consumer PCs, and game consoles. Management estimates its long-term addressable market across these areas at $79 billion.
The cyclical nature of the semiconductor industry is definitely a risk for investors to bear in mind, but unless Intel proves that its new chips can regain market share, AMD should remain a good long-term investment.