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Every now and then investors can let emotions get the better of them, buying (or selling) a stock for all the wrong reasons. Advanced Micro Devices (NASDAQ:AMD) has been one of those stocks. While its turnaround is real, the bulk of the 200%+ rally AMD stock has dished out since mid-April was rooted in hype rather than results.
That’s usually not a trap level-headed analysts fall into. They get paid to think critically and clearly, and most of them have seen enough to know a stock’s price always, eventually, reflects a company’s fundamentals.
Over the course of the past several days, though, it appears more than a few professional stock handicappers have jumped on the bandwagon for all the wrong reason. Afraid of not making a bold call on a red-hot stock, a couple of newcomers have served up head-turning price target increases and upgrades. It looks as if even the pros are losing perspective.
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The latest entry into the contest of who’s willing to make the most aggressive call on AMD stock? Stifel Nicolaus analyst Kevin Cassidy raised his price target on Thursday, from $21 to $38. That’s more than 20% higher than Wednesday’s close near $31.
That upped target was even bolder, though less dramatic, than Morgan Stanley’s big swing from the day before. Prior to Wednesday, its target on Advanced Micro Devices stock was only $11 — well below the consensus and its actual price — but analyst Joseph Moore catapulted his target to $28, explaining that rival Intel (NASDAQ:INTC) has “oversold” the actual value of its processors in the past and was now paying the price for lazy R&D and excessive pricing.
That move followed Tuesday’s new call from Mizuho analyst Vijay Rakesh. He raised his target 80% in one fell swoop, from $20 to $36. He also upped his target on Nvidia (NASDAQ:NVDA), though more modestly, from $280 to $295.
Question: Where the heck were these guys, and where was their optimism, just a month ago when AMD shares were hovering around $20? As of mid-August, these pros were saying the stock was only worth around $18.30. Now these analysts are saying it’s worth nearly $24 per share.
Might these professionals merely be hoping to capture a piece of the momentum, since most of them missed the bulk of the rally between May and August? Just asking.
It’s a close cousin to “performance chasing,” which is simply the act of buying into a stock hoping its recent-past gains will continue, whether or not you can reasonably expect more gains ahead. Sometimes that is a reasonable expectation, when the hype is strong enough — and it may well be strong enough with a well-loved turnaround story like Advanced Micro Devices. It doesn’t take a trading veteran to realize, however, that this kind of mentality is tantamount to playing with fire.