Yahoo Finance AMD Stock Down 8% in a Month: Is It Worth Buying the Dip?
Advanced Micro Devices AMD shares have declined more than 8% in the past month, underperforming the Zacks Electronics-Semiconductors industry’s gain of 5.4% and the broader Zacks Computer & Technology sector's return of 5%. Its closest peer, chip behemoth NVIDIA NVDA, has gained 11% over the same time frame.
Both AMD and NVDA have been the darlings of investors, driven by the massive proliferation of artificial intelligence (AI) that has created a strong demand for GPU chips required to power AI models.
However, in the past few weeks, market sentiment has been shifting from AI chip providers given the challenging macroeconomic environment and rising uncertainty over the upcoming Presidential elections. These factors have been an overhang on the share prices of chip providers.
AMD has been particularly affected, given its much smaller size and GPU market share compared to NVIDIA. Despite having a solid portfolio, growing skepticism over its ability to dethrone NVIDIA, at least in the near term, has been an overhang on its share price movement.
AMD Stock's One Month Performance
Image Source: Zacks Investment Research
However, the dip in AMD’s share price does open up opportunities for risk-tolerant investors. The AI space is expected to remain robust with increased spending by cloud computing providers like Microsoft MSFT and Alphabet GOOGL.
Gartner estimates spending on AI software to witness a CAGR of 19.1% between 2022 and 2027 to hit $297 billion in 2027. Generative AI (GenAI) software spending is expected to surge from 8% in 2023 to 35% by 2027. Deloitte expects enterprise spending on GenAI to increase 30% in 2024 from $16 billion in 2023.
AMD’s initiatives to expand its portfolio are making it well-positioned to challenge NVDA not only in the data center market but also in the growing AI-enabled consumer PC market over the long haul.
AMD’s Robust Portfolio Aids Long-Term Prospects
At Computex 2024, AMD unveiled its Instinct accelerator roadmap, which includes the new Instinct MI325X accelerator, which is planned to be available in the fourth quarter of 2024.
The next-generation CDNA 4 architecture, expected in 2025, will power the AMD Instinct MI350 Series. It is expected to drive up to 35X better AI inference performance compared to the AMD Instinct MI300 Series with AMD CDNA 3. The CDNA “Next” architecture will power MI400 series accelerators planned for 2026.
AMD unveiled the fifth generation of EPYC server processors (Turin) that leverage the Zen 5 core. It further expanded its portfolio with the launch of the Ryzen AI 300 Series, the third generation of AMD AI-enabled mobile processors, and Ryzen 9000 Series processors for laptop and desktop PCs.
AMD is also benefiting from its strong partner base. At Computex, Microsoft, HP, Lenovo and Asus unveiled new PCs powered by third-gen AMD Ryzen AI 300 Series processors and AMD Ryzen 9000 Series desktop processors.
Intensifying Competition Hurts AMD
NVIDIA’s strategy to release new AI chip models annually instead of its previous two-year update timeline intensifies competition for AMD. Moreover, initiatives by tech giants like Microsoft, Alphabet and Meta Platforms to build their own platforms for AI don’t bode well for AMD.
Microsoft’s Maia 100 AI accelerator is capable of running cloud AI workloads like large language model training and inference. It is powered by a 5-nanometer TSMC process and has 105 billion transistors.
Alphabet’s Google has introduced the Axion central processing unit (CPU) to support its AI work in data centers. Axion processors are its first tailored Arm-based CPUs designed to deliver robust performance and energy efficiency.
Meta Training and Inference Accelerator, which is a family of customized chips designed for Meta’s AI workloads, supports new generative AI products and services, recommendation systems, and advanced AI research.
AMD Stock Not So Cheap
AMD stock is trading at a discount when compared to NVIDIA and at a slight premium to the Zacks Electronics - Semiconductors industry. Its forward 12-month P/E of 36.84X is lower than NVIDIA’s 43X but slightly higher than the industry’s 34.83X.
However, this is not attractive for growth-oriented investors in the near term, given this Zacks Rank #3 (Hold) company’s modest growth prospects. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
AMD expects second-quarter 2024 revenues to be $5.7 billion (+/-$300 million). At the mid-point of the revenue range, this represents year-over-year growth of approximately 6% and sequential growth of approximately 4%.
The Zacks Consensus Estimate for second-quarter 2024 revenues is pegged at $5.71 billion, indicating 6.54% growth year over year. The consensus mark for earnings is pegged at 66 cents per share, down a couple of cents per share over the past 30 days.
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