The stock price of Advanced Micro Devices, or AMD for short, has been underperforming other major names in semiconductors like NVIDIA (formerly known as NVIDIA) and Taiwan Semiconductor due to concerns over its valuation and business. The stock was at $156 last Friday. This is down over 30% compared to its high point of the year. Its market capitalization now stands at $252 billion.
AMD faces significant headwinds
AMD has been under pressure for the last few months, and it is no surprise that AMD, one the industry’s most popular players, faces a lot of criticism.
The company’s financial results revealed that it was experiencing major challenges as the majority of its businesses continued to fall.
AMD reported a 9% increase in revenue to $5.8 Billion for the second quarter. NVIDIA, often viewed as AMD’s biggest rival, saw its revenue grow by 115% in the second quarter, as AI chip demand surged.
AMD has also seen a strong growth in the datacenter business, with revenues increasing by 115% from $2.8 billion to $2.8 Billion. The growth in revenue was mainly driven by AMD Instict GPUs and AMD EPYC CPUs.
AMD’s Client Segment also performed well, with its revenues increasing by 49% year-over-year to $1.5 Billion. The other segments, however, continued to deteriorate, as gaming revenue and embedded revenues fell by 59% each.
Analysts predict that AMD’s GPU market share will grow to be second only to NVIDIA (which has an 88% share). AMD’s market share is about 12%, and will grow because AMD GPUs are cheaper than NVIDIA.
AMD’s Radeon Open Compute is gaining in popularity with developers. ROCm, the AMD alternative to Compute Unified Device Architecture(CUDA), helps developers convert general-purpose GPUs to datacenter ones. However, the GPU market is a relatively small portion of their business.
The PC market will also grow slower than anticipated. Analysts predict that shipments of PCs will increase by over 2.61 billion this year, or 3.7% on an annual basis. Analysts expected the industry to grow at a rate of over 5%.
Analysts predict that Nvidia stock (NVDA), which is currently valued at $10 trillion, could be worth up to $10 trillion by 2030
AMD valuation worries
AMD’s other major concern is its high stock levels in comparison to NVIDIA. AMD’s most recent figures show that it had inventory worth $5 billion or 29% of the total assets. NVIDIA, on the other hand, had inventories worth $6.67billion or only 11%. These inventories may be moving very slowly. This can have a major impact on profitability.
Investors are also concerned by its high valuation metrics. This is especially true for a business that has not grown as much in the past.
AMD’s forward P/E is 120. This number is above the median for its sector of 30 and AMD’s five-year average. AMD has also a P/E trailing ratio of 187 which is also higher than sector median 29.8.
The AI investment cycle is continuing, so the company must continue to show strong growth.
Analysts anticipate that the results to be released will reveal a 15.7% increase in revenue for the third quarter, which amounts to $6.17 Billion. Then, a growth of 22.3% in revenue to $7.54 will follow. Its revenue for the current year will be $25 billion. Next year it is expected to reach $32 billion.
This means that AMD’s margins are significantly lower than NVIDIA. AMD’s gross margin is 51%, and its profit margin is 5.8%. NVIDIA, on the other hand, has a margin of 76%, and a profit ratio of 55%.
Even if AMD revenues increase to $50 billion and its net profits are $10 billion it still has a P/E of more than 25. Remember that AMD is expecting its annual revenue to reach $50 billion within the next 5 years.
AMD’s results on Tuesday, which are scheduled to be released at a time of their choosing, will therefore be crucial. The company will have to show that it is performing well in its industry, particularly AI. Analysts predict that the stock price should rise to $188 from its current $156.
AMD Stock Price Analysis
TradingView AMD Chart
AMD’s share price sends mixed signals on the daily chart ahead of earnings. The stock formed a chart pattern called an inverse heads and shoulders, which is regarded as a bullish indicator.
It is still oscillating between the 200-day moving average and 50-day moving average, which will soon form a bearish cross-over pattern. This is usually one of the more bearish signals in the market.
Stock has reached the Fibonacci retracement of 38.2%. If it releases strong results then the stock could rise up to $175, which was its high point in October. A drop below $150, the important support level, will indicate further downside.
A MAJOR MOVE IS COMING FOR $1AMD Technical Breakdown: Just a few moments ago, $AMD retested the recent downtrend line. It is common for this retest to be a bullish sign, which indicates the possibility of an upward continuation. The volume is high, the bulls have…
The post AMD Stock Price Forecast: Buy or Sell Before Earnings? This post may be updated as new information unfolds.
