AMD shares jump after an analyst upgrade. We also think the stock is a buy

Published Tue, May 17 20224:02 PM EDTUpdated Tue, May 17 20224:10 PM EDT

Kevin Stankiewicz @in/kevin-stankiewicz-b5593466 @kevin_stank

Club holding Advanced Micro Devices (AMD) is among the best-performing S & P 500 stocks Tuesday. Its gains are part of a broad rally on Wall Street, especially in hard-hit pockets like semiconductors, as some investors look for bargains following weeks of carnage. The other chip stocks we own for the Charitable Trust — Nvidia (NVDA), Qualcomm (QCOM) and Marvell Technology (MVRL) — are all up at least 4%, outpacing the overall market. AMD upgrade AMD shares are up more than 8% Tuesday, and a big reason why appears to be Piper Sandler's upgrade of the stock . Harsh Kumar, a chip analyst at the investment bank, now has an overweight rating on AMD and a price target of $140, up nearly 50% from where it closed Monday. Kumar previously had a neutral rating and $98 price target. Back in January, the analyst downgraded AMD to neutral. Now, after the stock has fallen more than 34% this year, it's time "to get constructive on the name again," Kumar wrote in a note to clients. "There are two old sayings in the investment world: 1) 'You cannot time the market, so do not try' and 2) 'Buy good companies when they are down,'" Kumar also wrote. In an interview Tuesday on CNBC, Kumar explained that his upgrade is not strictly due to the price action. He said he previously had expected AMD to be hurt by a slowdown in PC sales in 2022 and that AMD's blockbuster acquisition of Xilinx wouldn't be "materially impactful" right away. "As it turns out, AMD is navigating those headwinds extremely well," Kumar said on "The Exchange," noting that AMD's focus on higher-end PCs — including the kind commercial clients buy — has protected it from a sales slowdown in cheaper parts of the market. Demand for the video-game consoles that use AMD's chips has held up, too, Kumar said. This is a point that AMD CEO Lisa Su drove home in a CNBC interview earlier this month . "We believe we gained share on the client PC side and that's really on the strength of our product portfolio," Su said on May 4. On that day, we recommended Club members buy AMD's stock. It closed the session at $99.42. AMD closed on its all-stock Xilinx acquisition in February, as part of its data-center push, and it "has turned out to be a good one for these guys," Kumar said. In the first quarter, Xilinx's revenue grew 22% on a year-over-year basis. "So with the stock having come in dramatically lower ... and trading at just a 20 multiple on a forward basis, we thought it would be a good time for our investors to, perhaps, take a look at AMD," the analyst said. Big picture The broader semiconductor sector has been pummeled so far this year. The VanEck Semiconductor ETF (SMH) entered Tuesday's session down more than 26% year to date. It's up about 4% Tuesday, as a number of chip names rally. Kumar told CNBC he upgraded the entire sector Tuesday — not just AMD — as valuations have retreated to be more in line with their averages in recent history. "We went negative on the sector at the beginning of the year, on Jan. 3, and we just basically said stocks have come in enough," Kumar said. Concerns about an economic slowdown have likely weighed on chip stocks, which have traditionally been seen as cyclical. Even as some high-profile figures predict a recession on the horizon, Kumar said he believes that possibility is priced into the share prices of many semiconductor firms. "You look at semiconductor companies. They all have free cash flow. They have very strong earnings power. We're still in short supply of that raw material, and with this 15% calculus that I'm applying to haircutting the earnings, I think we're pretty much there," Kumar said. Cramer's take Kumar's pivot on AMD is welcome news to the Club as shareholders because we've believed the selling had become overdone. We most recently bought AMD shares in late April, scooping up 100 at roughly $86.25 apiece, and we emphasized our optimism May 4 after Su's CNBC appearance. We continue to rate the stock a 1, meaning we'd be buyers here even with Tuesday's bounce on the back Kumar's upgrade. We also want to call attention to Nvidia on Tuesday, with the chip firm trading around $180 per share. "Nvidia has got gaming. Nvidia is doing so many things that are not gaming. No one seems to care," Jim Cramer said during Tuesday's "Morning Meeting." The Club currently has a 1 rating on Nvidia, which has fallen sharply since reaching an all-time high around $346 on Nov. 22. The stock has tumbled as investors pivoted away from high-growth parts of the market. "It's come down dramatically. Do I think there's risk to it? There's always risk to every stock. I think that AMD is safer, but I like Nvidia here," Cramer said. (Jim Cramer's Charitable Trust is long AMD, NVDA, QCOM and MRVL. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust's portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.

Advanced Micro Devices CEO Lisa Su.

Scott Mlyn | CNBC