Technology stocks grew tremendously in 2016, but none of the industries did as well as semiconductors. Its success stems from the progress made in high-growth markets such as mobile, Internet of Things, artificial intelligence and data centers. As a result, iShares-Phlx Semiconductor ETF (SOXX), which tracks the performance of American semiconductor stocks, rose nearly 34% in 2016. The group's biggest winner is Advanced Micro Devices (AMD), also known as AMD, whose shares have nearly tripled since a year ago.
How did AMD grow threefold?
AMD's strengths can be found in its combination of GPU and CPU, as well as in its strategic partnership with new technologies. The new Polaris GPU is efficient and affordable, but more importantly, it threatens the long-term dominance of Nvidia (NVDA). Analysts expect AMD to release Zen processors next year to challenge Intel Corp.'s demands on the CPU market. However, AMD is not a two-pronged pony. It also produces chips for PlayStation 4 (SNE), Xbox One (MSFT), the new MacBook (AAPL) and other popular products. Recently, the company signed separate agreements with Alibaba and Google to provide AMD GPUs for their cloud platforms.
Given the success of its products and partnerships, it is not surprising that revenue and revenue continue to grow rapidly. A recent report from the company showed that profits grew 118% and 23%, exceeding analysts'expectations for the third consecutive quarter. More importantly, after seven consecutive quarterly losses, AMD turned around to 3 cents a share.
Improving business fundamentals helped drive the stock market higher in this year's rebound, but now stock prices seem overvalued. AMD's current P/E ratio is about 49 times its expected earnings, far higher than its peers and higher than the threshold for its growth stocks. (See also: How to use P/E ratios and pegs to judge the future of stocks.)
From a technical point of view, it is more obvious that its fundamentals have not kept up with the pace of stocks. Seventy-five of the 14-day relative strength indices were combined with prices that continued to touch the upper Brin line, reflecting over-buying. Traditionally, stocks cannot continue to rise at the current rate and must rebound before rebounding. Meanwhile, the six-month trading volume curve of the stock is in line with the price of $7 a share, reflecting a decline of about 20 per cent in current trading. (see also: using technical indicators to develop trading strategies)