3 Reasons AMD Could Be the Hottest Stock of the Summer

Key Points

• AMD's rally is looking stronger than ever and is supported by textbook higher highs and higher lows.
• Strong earnings in May, overwhelming analyst bullishness, and a risk-on market sentiment are creating a perfect storm for continued outperformance. 
• As a laggard still playing catch-up to its peers, the risk/reward profile is particularly attractive right now. 

Though Wednesday was a flat day for the stock, Advanced Micro Devices Inc. NASDAQ: AMD looks likely to continue adding to a rally that has logged an impressive 65% since April. The strong uptrend has been characterized by a run of higher lows and higher highs, exactly what Wall Street wants to see after months of concerning underperformance.

These are great signs for investors who might have been, rightly so, getting worried about the stock's multi-month downtrend and divergence from its better-performing peers. Remember, AMD last hit an all-time high back in March 2024, while NVIDIA Corp NASDAQ: NVDA hit a peak in January of this year and is currently sitting less than $10 per share away from another record. That divergence makes AMD an interesting comeback play.

There are many reasons to like this semiconductor giant, but here are three.

1. Earnings Are Surging

The foundation of AMD's current rally rests on impressive fundamental performance. May's earnings topped analyst expectations on both headline numbers, marking the company's second-highest revenue print ever and showcasing growth of 36% year over year.

What really caught Wall Street's attention was management's better-than-expected forward guidance, something the market loves to see in this environment. And, as CEO Lisa Su pointed out, the company's "year-over-year growth accelerated for the fourth consecutive quarter driven by strength in our core businesses and expanding data center and AI momentum."

The earnings beat wasn't just good; it was the kind of report that shifts sentiment and creates sustained buying pressure. For a stock that had been lagging behind its peers, this was exactly the catalyst needed to reignite investor enthusiasm.

2. Analysts Are Super-Bullish

Perhaps unsurprisingly, given the strong fundamentals, the analyst community has also been overwhelmingly bullish on AMD, with updates from the past few days echoing similarly positive calls throughout May. Piper Sandler, for example, reiterated their Overweight rating on Monday while boosting their price target to $140.

This move echoed similar upgrades from Stifel Nicolaus, Roth Capital, and Rosenblatt last week, with the latter slapping a fresh $200 price target on the stock.

From Wednesday's close of $126, that Rosenblatt target implies an upside of around 60%. They and their peers have been particularly impressed by the company's prospects for a "snap back" in its GPU business, which could well be a fresh catalyst that will only add to the tailwind already driving the stock higher.  

3. The Market Is Ripe for a Catch-Up

After a shaky couple of months back around the end of Q1 and the start of Q2, broader market sentiment is once again very much bullish right now, with the benchmark S&P 500 index sitting right below all-time highs. It has all but completely recovered from the vicious 20% selloff earlier this year, which screams risk-on. In that kind of environment, catch-up plays like AMD become particularly attractive to portfolio managers looking to boost their returns.

They start looking for quality names that haven't yet participated fully in the rally, and AMD fits that bill perfectly. It's a fundamentally strong company with improving metrics whose stock has lagged behind its peers. It's the kind of risk/reward setup that is particularly attractive for managers targeting outsized returns, so expect to see a continued rotation into AMD during the weeks ahead.

The Summer Setup Looks Spectacular

Taking it all into account, AMD presents a compelling opportunity for those looking to position for summer outperformance. The combination of strong earnings momentum, overwhelming analyst support, and a risk-on market environment creates the perfect conditions for continued outperformance. 

The path to $140 looks clear, with $180, and maybe even $200, not out of the question if their fundamentals continue to gain momentum through August's report. For investors who missed the NVIDIA rally, AMD offers a second chance at unlocking some of those sweet semiconductor gains.