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Why Did AMD Stock Rise 5.5% on Tuesday?

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Improving prospects regarding the approval of The Chips for America Act should keep investors hooked on semiconductor stocks like AMD.

Leading semiconductor company Advanced Micro Devices, Inc. (NASDAQ: AMD) has grabbed investors’ attention at a time when the prospects for government-backed growth incentives are getting brighter. The stock rallied 5.5% on Tuesday, ahead of the Senate voting session that will decide the fate of The Chips for America Act, which is designed to boost the U.S. semiconductor industry.

The U.S. Senate has voted by 64 to 34 to proceed with a trimmed version of the proposed legislation, per a Reuters report. The bill is expected to be approved in the Senate and the House of Representatives by the end of next week.

What’s the Bill Offering?

The Chips for America Act is expected to include subsidies valuing around $54 billion for semiconductor companies in the United States. The bill is anticipated to provide a four-year 25% tax credit to motivate companies to build plants in the United States and make investments in the U.S. semiconductor industry. The tax credit is projected to value at about $24 billion.

The proposed legislation is an attempt to solve the ongoing supply-chain disturbances and supply shortages being faced by the U.S. semiconductor industry. This is hurting the manufacturing of several consumer products like smartphones, gaming consoles, and automobiles.

Amid the COVID-19 uncertainty and geopolitical crisis, the bill also aims to reduce the dependence on Asian manufacturers like China and Taiwan.

According to a report published by Barrons, Robert Kaminski of Capital Alpha said, “Semis investors have been looking for CHIPS passage to be a catalyst for the stocks, but we have been cautioning that it will take months for the money to actually get out the door.”

AMD’s Game Stays Strong

AMD is gaining from the robust performance of its Ryzen and EPYC server processors. In fact, revenues from the EPYC server processor more than doubled for the third consecutive quarter in the first quarter of 2022. Each of the company’s businesses saw double-digit year-over-year growth in the last reported quarter. Further, the acquisition of Pensando is expected to broaden AMD’s data center product offerings on the back of its distributed services platform.

Street Is Optimistic about AMD Stock

Overall, the Street is optimistic about the stock and has a Moderate Buy consensus rating based on 18 Buys and seven Holds. Advanced Micro Devices’ average price target of $129.36 signals that the stock may surge nearly 50.6% from current levels. Shares of AMD have lost 42.8% so far this year.

AMD scores a 9 out of 10 on TipRanks’ Smart Score rating system, indicating that the stock has strong potential to outperform the market. Also, financial bloggers are 89% Bullish on AMD, compared with the sector average of 65%.

TipRanks data shows that hedge funds are Very Positive about the company, as they bought 9.3 million shares of AMD stock in the last quarter.

Is AMD Stock Worth a Shot?

It is worth noting that The Chips Act could prove to be more beneficial for companies like Intel (INTC), which manufacture their own chips, unlike AMD, a semi-designer, which outsources the production of its chips.

Nevertheless, AMD is well-positioned to gain from upbeat prospects in the U.S. semiconductor industry. Its solid full-year guidance indicates higher organic growth across AMD. Investors interested in the stock could pocket solid returns in the long term.

Read full Disclosure.

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