Advanced Micro Devices Doesn't Have Any Room To Miss In 2017

Shares of Advanced Micro Devices, Inc. AMD soared higher by more than 12 percent on Wednesday after the company reported its fourth-quarter results.

The stock is now higher by more than 400 percent over the past year, which means investors should now be more cautious, at least according to Loop Capital Markets' Betsy Van Hees.

According to Van Hees, concerns exist following the company's report that the stock is now "being priced to perfection" with the bar set "very high" in 2017. As such, there is no room for error, and there are three areas where management needs to excel in.

Areas To Watch

First, 2017 marks the first time ever that the company is ramping three new products over a short time period — and management needs to "flawlessly execute" on the endeavor. Specifically, the company will release: 1) the desktop processor Ryzen on its new Zen micro-architecture in March, 2) Vega GPUs in the second quarter of 2017 and 3) Naples processor for serves based on Zen also in the second quarter.

Second, AMD needs to continue gaining CPU and GPU market share across both desktop and notebooks.

Third, the company needs to get design wins and market share in the server market.

Conclusion

Bottom line, the analyst is "upbeat" on AMD as the company could be on track to return to year-over-year profitability, but until management demonstrates two consecutive quarters of profitability, the stock should trade at a discount to the sector's blended peer group average of 2.9x on an EV/2017 revenue estimate.

Shares remain Buy rated with a price target raised to $12 from a previous $11 which implies a 2.4x multiple on the analyst's EV/2017 revenue estimate of $4.585 billion.

Image Credit: Advanced Micro Devices, Inc. (AMD) [Attribution], via Wikimedia Commons