Where Does AMD Go From Here?
| About: Advanced Micro (AMD)
AMD has virtually followed the same dramatic path of NVDA. Yet, both are in direct contrast to the lackluster performances of INTC and QCOM, which are their competitors.
A triangular relative valuation method is used to extract the embedded earnings growth rates in the stock prices of INTC, NVDA, and AMD.
For the next one year, AMD has already priced in 210% earnings growth annually, given that INTC and NVDA have also priced in 3% and 110%, respectively.
AMD also reflects 81% annual earnings growth for the next 2 years and 51% for the next 3 years. You will be the judge if this is excessive.
From the unusually high earnings growth rates already embedded in the stock prices, if both AMD and NVDA are overvalued, AMD is more overvalued than NVDA.
Advanced Micro Devices (NASDAQ: AMD) has virtually followed the same dramatic path of Nvidia (NASDAQ: NVDA) in the recent period (see Figure above). It is logical to look at AMD and NVDA the same way. On the other hand, NVDA and AMD’s sharp movements are in direct contrast to the lackluster performances of Intel (NASDAQ: INTC) and Qualcomm (NASDAQ: QCOM), which are their competitors in the PC graphics market. In order to do a proper valuation of AMD, the first task is to identify proper benchmarks for comparisons.
If you don’t like the conclusion of this analysis that “If both AMD and NVDA are overvalued, AMD is more overvalued than NVDA,” you may want to stop reading here.
What Are AMD’s Benchmarks?
To make a sensible value comparison, we need to assume that all potential companies make relatively homogeneous products. Further, product similarities are reflected in relative stock valuation in that the most relevant choice of the benchmark should be based on shareholders’ perspective. A company is only relevant to AMD if its stock moves with or against AMD in reacting to the same industry events. As a result, I first identify which stocks are relevant to be compared in valuations.