Ascent Wealth Partners: AMD's (AMD) Run-Up Could Meet With Big Drop; Buy at $38

The recent rally from Advanced Micro Devices (AMD) (NASDAQ: AMD) showed up like the Spanish Inquisition; nobody expected it. The stock's value has doubled in almost four months, a huge run-up by just about any standard you care to name. There are signs, however, that the rally is starting to back off, and some, like Ascent Wealth Partners, are being particularly cautions, expecting a fairly substantial pullback to take place.

AMD's Time Had Come, and May Be Going

Ascent Wealth Partners, as expressed through managing director Todd Gordon, laid out the history of AMD in brief, and offered some reason behind the gains. The biggest one Gordon pointed out was that, essentially, it was just time for AMD to rise. He pointed out that the company had been engaging in a consolidation effort for the last two decades, and that enormous gain seen recently was part of that.

With that in mind, Gordon looked at the 140% the stock had gained in the preceding 12 months and noted that it was likely time that the share value start retracting. Such an assessment has some support, meanwhile, as Wells Fargo's lineup of analysts took to AMD as well, dropping it from “overweight” to “equal weight.”

Gradient Investments' president Michael Binger also offered some less-than-positive views for the upcoming future with AMD, noting that AMD was trading at roughly 50 times earnings for the year. For a company whose product line focuses mainly on the PC market, that's a lot more growth than would normally be seen.

The Next Buying Opportunity for AMD May Be Coming

Yet even as Gordon offered up rather bleak expectations for AMD going forward, he also suggested that any decline would likely come with a floor. Gordon expressed concern that the stock had simply moved too quickly up to its current level—$54.96 as of this writing—and now may pull back to $38. That's a drop around 35%, and a return to levels not seen since the end of 2019.

That's an assessment Binger shared as well, noting that he wouldn't buy AMD at its current prices, but after Gordon's projected pullback, it would be a different story. After all, AMD's biggest competitor, Intel (NASDAQ: INTC), still has much of the market in its own grip, and can always engage in price cutting to keep its market share intact and limit AMD's potential for growth.

Earlier, we found that Northland Securities had a similar price target on AMD itself, though it believed that the price would pull back to $36. A difference that narrow might as well be called consensus.

Future News is a Mixed Bag for AMD

So the question stands: can AMD keep up with its own stock price gains, or has it indeed flown too close to the sun without letting its waxwork wings harden properly first in the grandest Greek myth tradition? Here's the biggest problem immediately visible for AMD: the news surrounding the company is a mixed bag at best.

Reports from a week ago suggest that its upcoming Threadripper 3990X processor has sufficient power that it can run the graphics-intensive game “Crysis” without the use of a graphics card. Granted, it doesn't run it flawlessly—reports suggest there are occasional slowdowns and even outright freezes—but a processor that powerful when backed up by the appropriate graphics card suggests that AMD might have some serious juice behind it in the gaming PC market.

There are also reports that several models in the Lenovo ThinkPad line will soon come powered by AMD processors. Moreover, these should be sufficiently powerful to provide a genuine alternative to Intel processors, which will pull one of the legs that Intel had to stand on in terms of fending off AMD competition.

However, it's not a mixed bag without bad news, and further reports are suggesting that AMD's graphics card lineup may have some issues; apparently, the cards are overheating because the screws aren't sufficiently tightened, a point that could give AMD a black eye and a ready source of counter-marketing. Nothing worse than the competition being able to legitimately say AMD graphics cards may have a screw loose.

Essentially, AMD has a case for continued growth and expansion, and thus, elevated stock price. It's also got a case to turn south suddenly and take a lot of share value with it. The only question left is how shareholders will respond to this mixed bag of potential outcomes; is this a hang-on-for-dear-life (HODL) to rival any cryptocurrency, or is this a good time to take profits and cut bait?