Advanced Micro Devices (NASDAQ:AMD) finds itself at a crossroads. While the company remains a key player in the semiconductor space, it continues to lag behind Nvidia in the data center market. Investor concerns have also surfaced over potential weakness in its gaming and embedded segments.
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Meanwhile, AMD’s stock has taken a double-digit hit this year, reflecting broader market jitters about where the company is headed next.
This is where Warren Buffett’s well-known adage becomes relevant: “Be fearful when others are greedy and greedy when others are fearful.” If you’re following that playbook, AMD’s slump might be a prime chance to make a move.
One investor, known by the pseudonym Envision Research, embodies this approach. Channeling Buffett’s mindset, the 5-star investor says this is a prime chance to lean in when others are leaning out.
“I consider this a good contrarian opportunity to be greedy and bet against the prevailing sentiment,” the 5-star investor opined.
The rationale behind this bullish stance hinges on two key factors: an attractive valuation and improving inventories.
On the valuation front, the slide in AMD’s share price has brought its PEG ratio close to the “gold standard” of 1% for GARP investors. Further bolstering the case, AMD’s EPS is projected to grow at a robust CAGR of 36.6% over the next five years — a growth trajectory that Envision Research views as a driver of the stock’s upside potential.
Another compelling factor is AMD’s “capital-light model.” Unlike capital-intensive peers, AMD allocates the bulk of its CAPEX to growth investments rather than maintenance. This distinction, according to Envision, means the company’s true owners’ earnings are notably higher than its reported accounting EPS. “Its P/E based on owners’ earnings would be about 32% lower than its accounting P/E,” explains the investor.
The investor is also pleased by AMD’s recent inventory data, which has seen improvement over the past few months. In particular, Days of Inventory Outstanding have been decreasing, signifying that sales growth is beginning to catch up with inventory.
Concluding that “downside risks are already well priced in,” Envision rates AMD shares as a Buy. (To watch Envision Research’s track record, click here)
Even though AMD stock has not enjoyed the best year, Wall Street analysts seem to agree with Envision’s take. With 22 Buy and 8 Hold recommendations, AMD boasts a consensus Moderate Buy rating. Its 12-month average price target of $184.33 translates into gains of ~41%. (See AMD stock forecast)
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Disclaimer: The opinions expressed in this article are solely those of the featured investor. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
