Skip to main content

Why AMD Stock Fell Before Recovering Earlier Today

Motley Fool - Wed Oct 5, 1:32PM CDT

What happened

Shares of Advanced Micro Devices(NASDAQ: AMD) were down over 4% this morning before rallying. Wells Fargo analyst Aaron Rakers cut his growth estimates for the next three years, citing weakening demand in the PC market that might spill over to the data center market, a key driver of growth for the chipmaker.

As of 12:56 p.m. ET on Wednesday, the stock was down just 1.3%, while the S&P 500 index was down less than 1 percent.

The fears of inflation and rising interest rates have sent this growth tech stock down 53% year to date. Should investors be worried about more losses after Wells Fargo's call?

So what

In AMD's last earnings call in early August, CEO Lisa Su mentioned that the company's next-generation 5-nanometer Genoa server central processing unit (CPU) was experiencing very strong customer pull. But this was two months ago, and the demand trends might have deteriorated since then.

The market intelligence firm International Data Corporation forecast PC shipments to be down 12.8% in 2022, with most of this decline coming from consumer and public sector markets. Not surprisingly, the enterprise market, which can afford to keep investing in products during recessions, is only expected to experience a 1.6% decline in PC shipments.

Su said that AMD is on track to launch the new server CPU later this year, positioning the data center business for "continued growth and share gains."

Now what

AMD reported robust 83% year-over-year growth in data center revenue last quarter. Even with a decline in PC shipments through the second quarter, the client and gaming segments posted revenue growth of 25% and 32%, respectively.

AMD's business might hold up better than investors realize, since part of the investment thesis revolves around taking market share from Intel.

Most importantly, the stock trades at a forward price-to-earnings ratio of just 15.5 times this year's earnings estimate, which is a discount to the average stock.

Still, investors might want to wait another quarter to see management's updated outlook before deciding to call the stock a bargain.

10 stocks we like better than Advanced Micro Devices
When our award-winning analyst team has a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*

They just revealed what they believe are the ten best stocks for investors to buy right now... and Advanced Micro Devices wasn't one of them! That's right -- they think these 10 stocks are even better buys.

See the 10 stocks

*Stock Advisor returns as of September 30, 2022

John Ballard has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices and Intel. The Motley Fool recommends the following options: long January 2023 $57.50 calls on Intel and short January 2023 $57.50 puts on Intel. The Motley Fool has a disclosure policy.

Paid Post: Content produced by Motley Fool. The Globe and Mail was not involved, and material was not reviewed prior to publication.