Advanced Micro Devices AMD, a formidable player in the semiconductor industry, has been grappling with a tumultuous market in recent weeks. The company’s stocks took a nosedive of over 14% following reports of potential U.S. government restrictions on chip exports to China. These restrictions, a response to existing prohibitions on high-end chip sales, have triggered a storm of uncertainty within the industry.
On July 17, AMD shares slumped by 10.2% upon the revelation, accentuating the unease among investors. The descent continued the next day, settling at $155.77. While year-to-date figures indicate a modest 5.7% uptick in AMD’s shares, this growth pales in comparison to the broader Computer & Technology sector’s robust 20.8% increase.
The shockwaves of the Biden administration’s intention rippled beyond AMD, affecting tech giants like NVIDIA, Micron Technology, Marvell Technology, and ASML. These companies witnessed substantial market value erosion on July 17. Marvell bears the heaviest China exposure, with 45% of its revenues originating from the region. Meanwhile, ASML, NVIDIA, and AMD draw approximately 41%, 20%, and 15% of their revenues from China, respectively. Micron, on the other hand, relies on China for about 10% of its total revenues.
The Rocky Road of AMD’s Stock
AMD faces stiff competition in the market, particularly from NVIDIA, its arch-rival. Both companies have enthralled investors with their AI-focused offerings, driven by the soaring demand for GPU chips essential for AI applications. Yet, the uncertain macroeconomic landscape and looming Presidential elections cast a shadow over AMD’s future. The company’s modest size and GPU market share have skeptics questioning its ability to overtake NVIDIA’s stronghold.
AMD’s near-term outlook is further marred by weakening revenues in its Embedded and Gaming segments. Forecasts for the second quarter of 2024 predict a considerable year-over-year dip in revenues for these segments, with the Gaming segment sliding by a massive 165.4%.
Shifting Estimates and Future Projections
AMD anticipates second-quarter 2024 revenues to touchdown at approximately $5.7 billion. This target indicates a projected 6% year-over-year growth and 4% sequential upturn at the mid-point of the revenue range.
The Zacks Consensus Estimate mirrors this optimism, suggesting a 6.54% rise in revenues year over year. Earnings estimates average at 67 cents per share, marking a penny increase over the past month.
Charting AMD’s Trajectory
Image Source: Zacks Investment Research
Exploring AMD’s Strategic Arsenal
AMD’s future shines brightly on the back of robust investments in AI chips. Market projections foresee AI semiconductor revenues surging to $71.25 billion by 2024, an impressive 33% leap from 2023. In 2025, this figure is expected to further soar to $91.96 billion.
Recent offerings like the Instinct MI325X accelerator solidify AMD’s stance in the data center arena and the burgeoning AI-driven consumer PC market. Strategic acquisitions, including Silo AI, have bolstered AMD’s AI ecosystem, establishing a fertile ground for future growth.
Valuation and the Contrarian View
Despite the promise, AMD faces a conundrum of overvaluation, signaling potential caution for investors. The company’s current Value Style Score of F paints a picture of stretched valuation within the market. Trading at a premium to the industry, AMD’s forward 12-month P/E ratio of 35.54X eclipses the industry’s 34.56X.
The Wolf at the Gates – Conclusion
Amidst bleak near-term prospects, AMD’s Growth Style Score of D may deter growth-oriented investors. The current Zacks Rank of #3 (Hold) advises a patient approach, awaiting a more favorable entry point. Those already on board can find solace in AMD’s long-term growth potential, despite the prevailing tempest in the market.