Advanced Micro Devices (NASDAQ:AMD) has joined other semiconductor stocks in a three-week slump. AMD stock experienced another slide (this one lasting two months) in late summer, but surged through October and November. When AMD closed at $161.91 on Nov. 29, shares had posted growth of 77% for 2021. However, that all-time high close kicked off a slump.
Even after a single-day 8% pop last week, AMD stock is down 16% from its Nov. 29 close. Is the current weakness in AMD a warning of tough times ahead for investors in this semiconductor stock?
The other way to interpret the situation is opportunity knocking. Despite its losing performance through December, AMD is still up 49% since the start of the year. It was the top performing stock in the S&P 500 in 2019, with 150% growth. AMD followed that up with 105% growth in 2020.
The company’s latest quarter was another record-setter and resulted in AMD raising its 2021 revenue guidance. That sounds more like an opportunity to buy on the dip than a stock that should be avoided. However, let’s parse the AMD situation in some detail to make certain.
Why Has AMD Stock Been Sliding Through December?
After closing at an all-time high of $161.91 on Nov. 29, AMD shares have been sliding. Why the slump? After all, it was only the end of October when the company reported a record-setting third quarter.
The company’s CEO summed up the quarter for investors:
“AMD had another record quarter as revenue grew 54% and operating income doubled year-over-year … 3rd Gen EPYC processor shipments ramped significantly in the quarter as our data center sales more than doubled year-over-year. Our business significantly accelerated in 2021, growing faster than the market based on our leadership products and consistent execution.”
The year was looking so good at that point that AMD raised its full-year guidance. After originally projecting full-year revenue growth of 60% for 2021, AMD now expects to see 65% growth. In addition, the company’s $35 billion acquisition of Xilinx is expected to close at the end of the year — this gives AMD an even bigger play for data center business.
So why the negative sentiment to end off the year? There are a number of factors at play.
For one, many tech stocks have been hit by a broad market selloff in December. There are concerns that omicron could lead to an increase in restrictions and lockdowns, cutting business and consumer spending. There are also worries about the potential for rising interest rates and inflation to cut into spending.
What Led AMD to Briefly Pop Last Week?
Like Nvidia (NASDAQ:NVDA), AMD stock surged for a day last week. On Dec. 15, shares closed up 8%. However, like its graphics card competitor, AMD’s shares quickly gave back that gain. So what happened?
The action last Wednesday was the result of a report released by KeyBanc that was bullish about cloud computing growth. The report was a positive for AMD and its EPYC data center servers.
But the excitement was short-lived and not enough to kick of an actual recovery for AMD stock.
Bottom Line on AMD Stock
The poor performance of AMD stock thus far in December reflects the risks the company faces. This Portfolio Grader “B” rated stock could feel the impact of factors outside of the company’s control, including inflation, rising interest rates and spending cuts in both the consumer and corporate sectors.
However, none of these risk factors are certain. Potential investors should also be looking at the enviable performance by AMD stock over the past 3 years.
AMD’s recent earnings and revenue projections are also exemplary. The company’s products including Ryzen PC processors, EPYC data center processors, Radeon graphics cards and the custom chips found in the PlayStation 5 and Xbox Series X game consoles are in high demand. AMD is strengthening its data center push with 5G solutions and its Xilinx acquisition.
If you want to know how strong AMD’s position has become, look no further than the company’s Oct. 21 announcement. Graphic card rival Nvidia’s GeForce NOW cloud gaming platform will be powered by AMD silicon. That’s right, AMD Ryzen Threadripper PRO processors will be inside those Nvidia servers.
That doesn’t sound like a company whose stock should be on its way down to me. It sounds more like an opportunity to take advantage of an AMD stock slump before its return to growth.
— Louis Navellier and the InvestorPlace Research Staff
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Source: Investor Place