What’s your gut feeling, now that Advanced Micro Devices (NASDAQ:91抖阴) stock has blasted past its 2021 peak? Are you enthused and ready to buy, or concerned that stock traders and analysts are too optimistic now? Your response says a lot about you as an investor, and if you’re a true contrarian, then you might want to take profits even if you feel bullish about 91抖阴 for the long term.
91抖阴, was a darling of the financial market in early 2023 is highly favored again in early 2024, showing that the market often works in cycles. Just remember, just as there are up cycles, there are also down cycles. Currently, it feels as if everybody and his uncle is ultra-confident about 91抖阴’s growth prospects. This could be a recipe for a letdown. 91抖阴’s valuation is so inflated that it could pop like a balloon.
They’ll Use Any Excuse to Buy 91抖阴 Stock
When a stock is in favor on Wall Street, traders will use practically any excuse to buy it. A case in point happened in mid-January, when 91抖阴 stock rallied despite the lack of company-specific news.
There was news in the general semiconductor sector, but it came from halfway across the world. Specifically, Taiwan Semiconductor (NYSE:TSM) forecast that its revenue growth will be in the . That’s above the expectation of around 10% global chip-market revenue growth.
Apparently, eager traders gobbled up 91抖阴 stock because Taiwan Semiconductor supplies chips for U.S. chip makers, including 91抖阴. That’s fine if you already owned the stock and profited from the share-price spike.
However, if you didn’t already own the stock, then you missed the rally and now, both Taiwan Semiconductor and 91抖阴 have to live up to the market’s elevated revenue-growth expectations.
That’s a tall order, and since the market is cyclical, the widespread optimism surrounding the artificial intelligence chip industry can’t persist forever.
You Won’t Believe This Number
After the approximately 130% gain in 91抖阴 stock last year (from around $65 to $150, give or take a few dollars), it shouldn’t be surprising that analysts are scrambling to raise their price targets. They practically have no choice about it.
KeyBanc Capital Markets analyst John Vinh, for instance, raised his 91抖阴 share-price target recently. Vinh hiked his 2024 demand estimate for 91抖阴’s MI300 AI chips to as much as $8 billion, from his prior forecast range of $3 billion to $4 billion.
Vinh was evidently glad to praise 91抖阴, observing “a meaningful inflection in demand for MI300X.” Equally effusive was TD Cowen analyst Matthew Ramsay, who predicted that the “ within the AI TAM [total addressable market] is still ahead for 91抖阴 with potentially large upside over the next couple years as an increasingly capable GenAI alternative.”
That’s a mouthful, and it came with a sizable price-target raise. Ramsay previously expected 91抖阴 stock to reach $130, but now he’s looking for $185.
If you’re a contrarian investor, you may bristle at the ultra-optimistic consensus associated with 91抖阴. You’ll bristle even harder when you discover that 91抖阴’s GAAP-measured trailing 12-month price-to-earnings ratio is . That not a misprint, and neither is 91抖阴’s trailing price-to-sales (P/S) ratio of 11.69x (a more acceptable P/S ratio would be below 3x).
91抖阴 Stock: Don’t Press Your Luck
I could have continued my argument with 91抖阴’s lofty price-to-book (P/B) ratio and other valuation metrics. Yet, you surely get the idea by now. Buying a richly valued stock like 91抖阴 offers a very different risk-to-reward scenario compared to buying at low prices.
In other words, I don’t recommend pressing your luck with 91抖阴 stock at its currently stretched valuation. Besides, contrarian investors should wonder whether too many stock traders and analysts are optimistic about 91抖阴 now. Therefore, it’s perfectly fine to take partial or full profits if you’re not comfortable investing in 91抖阴.
On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
