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Is Advanced Micro (AMD) a Buy as Wall Street Analysts Look Optimistic? Wall Street Insights: Is Advanced Micro Devices (AMD) a Sensible Investment?

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Investors often rely on the advice of Wall Street analysts when making decisions pertaining to the trading of stocks. The influence of media reports on stock prices based on the ratings of these sell-side analysts cannot be underestimated. But how much weight should we give to their recommendations?

Before we delve into the reliability of brokerage recommendations and their strategic value, letโ€™s explore the insights provided by Wall Street heavyweights on Advanced Micro Devices (AMD).

The Landscape for Advanced Micro

At present, Advanced Micro holds an average brokerage recommendation (ABR) of 1.36, falling between Strong Buy and Buy on the 1 to 5 scale. This figure is the result of actual recommendations (Buy, Hold, Sell, etc.) from 29 brokerage firms, with 23 Strong Buy and one Buy. Consequently, Strong Buy and Buy recommendations account for 79.3% and 3.5% respectively.

Broker Rating Breakdown Chart for AMD

Find Advanced Microโ€™s price target & stock forecast here >>>

The Reliability of Brokerage Recommendations

While the ABR suggests a buy for Advanced Micro, relying solely on this information for investment decisions may not be prudent. Studies have indicated limited success of brokerage recommendations in identifying stocks with substantial price increase potential.

Why is this the case? Brokerage firmsโ€™ vested interests in the stocks they cover lead to a strong positive bias in their analystsโ€™ ratings. Furthermore, for every โ€œStrong Sellโ€ recommendation, brokerage firms assign five โ€œStrong Buyโ€ recommendations, thus highlighting a misalignment of interest with retail investors.

Therefore, itโ€™s advisable to use this data to validate personal analysis or a proven tool for predicting stock price movements.

The Role of Zacks Rank

Our internally audited Zacks Rank, which categorizes stocks from Zacks Rank #1 (Strong Buy) to Zacks Rank #5 (Strong Sell), is a reliable indicator of near-term price performance. Hence, corroborating the Zacks Rank with ABR can significantly aid in making informed investment decisions.

ABR vs. Zacks Rank

Although both ABR and Zacks Rank are rated on a 1-5 scale, they are distinct metrics. ABR is based solely on broker recommendations, often displayed in decimals, while Zacks Rank relies on a quantitative model centered around earnings estimate revisions, represented in whole numbers from 1 to 5.

Brokerage analystsโ€™ consistently optimistic recommendations are at odds with their research, as they tend to overrate stocks due to their employersโ€™ vested interests. In contrast, the Zacks Rank reflects earnings estimate revisions, which are strongly linked to short-term stock price movements based on empirical research.

Is AMD a Wise Investment?

In terms of earnings estimate revisions for Advanced Micro, the Zacks Consensus Estimate for the current year has remained steady at $2.65 over the past month. Analystsโ€™ consistent views on the companyโ€™s earnings prospects, leading to an unchanged consensus estimate, could justify the stockโ€™s near-term performance in line with the broader market.

Despite this, a Zacks Rank #3 (Hold) has been assigned to Advanced Micro due to the recent consensus estimate stability and other factors related to earnings estimates.

You can view the complete list of Zacks Rank #1 (Strong Buy) stocks here >>>>

Final Thoughts

Given the slight caution warranted by the Buy-equivalent ABR for Advanced Micro, itโ€™s clear that investors should exercise their own judgment and consider accompanying factors like the Zacks Rank before making investment decisions.

Zacksโ€™ Top Pick

With numerous options at hand, Zacks experts who have chosen their favored stocks to potentially skyrocket by +100% or more are worth considering. The selected company boasts unrelenting demand, soaring 2022 earnings estimates, and $1.5 billion for share repurchasing, making it a compelling investment prospect for retail investors.

The potential of this company could rival or surpass other recent Zacksโ€™ Stocks Set to Double, such as Boston Beer Company and NVIDIA, both of which have experienced significant growth.

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For the original article, refer to Zacks.com.

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The opinions expressed herein are solely those of the author and do not necessarily reflect those of Nasdaq, Inc.

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