Shares of semiconductor star Advanced Micro Devices (AMD 0.19%) jumped on Tuesday, and are up 2% as of 11:30 a.m. ET.
You can thank investment banker Bernstein for that.
This morning, Bernstein upgraded shares of AMD to outperform -- the analyst's first upgrade of the semiconductor stock to a buy level in a decade, as StreetInsider.com just pointed out.
In a very personal note, Bernstein admitted that "long ago as baby sell-side researchers [Bernstein was] among the most bullish on the street on AMD," but had its hopes "dashed by GloFo execution issues & the start of the PC market collapse." Once burned, twice shy, Bernstein then "watched ... from the sidelines" as "the stock subsequently climb[ed] from sub-$2 to over $100."
This was a huge missed opportunity and "the biggest missed call of our Wall Street tenure," laments Bernstein, but "this is not the AMD of a decade ago." Instead, AMD has in recent years demonstrated "continued stellar execution [and] increasingly bankable earnings power."
Today, says Bernstein, AMD stock "trades under 30-times near-term EPS and 20-times a likely $5-plus in earnings power, approaching the cheapest in 5 years."
And granted, these valuations Bernstein is citing are forward price-to-earnings ratios, which may or may not prove out. But even limiting oneself to valuing the stock on historical, proven profitability, AMD shares cost only 44 times trailing earnings today. Relative to analyst forecasts for 30% long-term annual earnings growth rates, that's not a cheap price, exactly, but it's not insanely expensive in this market, and it does look attractive relative to, say, Nvidia shares at more than 60 times trailing earnings on a slower (21%) projected earnings growth.
That makes AMD stock at least a relative bargain. After 10 years of waiting, I can hardly blame Bernstein for jumping at the opportunity to recommend AMD stock today.