Advanced Micro Devices (AMD) stock prices reached an all-time high in 2021. Massive PC and component sales meant the company was doing great financially. However, moving forward from that, sales and stock prices have been in a steady decline, leading many fanatics to wonder why AMD stock is dropping so much. Let’s examine the factors and determine what has led to the falling price of these stocks.
Overall Health of the Semiconductor Industry
The financial health of the semiconductor industry could have been more impressive in the past few years. The COVID pandemic, combined with a massive fire in a manufacturing plant, crippled chip production en masse. These events’ effects are still being felt in the industry today.
Following those massive blows to the industry, the U.S. government announced restrictions on the sale of products to China on October 7, 2022. With China being a significant player in the semiconductor industry, this move cost manufacturers huge amounts of revenue in an already struggling economy.
AMD was among the hardest hit in 2022, with stock prices falling almost 15% in the days after the October 7th restrictions were announced. Additionally, Taiwan Semiconductor Manufacturing (TSM), AMD’s production line, saw stock drops of almost 15%, although their revenue from China makes up just 10% of their overall income.
By the end of that year, AMD was down almost 60%, though that stock drop mirrored that of most of the semiconductor industry in general. That year, SPDR S&P Semiconductors was down 40%, Lam Research and Applied Materials was down almost 50%, and even NVIDIA was down nearly 60%. Since semiconductors are such an integral part of the technology market, this brought the whole tech sector down by around 30%, depending on who you ask.
AMD Is Shifting Its Market Presence
AMD made its name selling budget PC components. The goal was to offer specs that rivaled the big players in the PC industry, like Intel and NVIDIA, while still being able to sell those chips at a competitive price.
However, moving into 2023, AMD has announced that they’re drastically shifting their manufacturing focus. Where they used to focus on consumer PC parts, they’re starting to produce semiconductors aimed at data centers and artificial intelligence processors.
As AMD is breaking new ground by moving into the data center and artificial intelligence markets, they have new competitors and less of a proven sales track record. Consequently, investors will be wary of sinking their cash into the company as it has yet to establish itself in these new markets.
Additionally, AMD’s gross profit margin has fallen quite a bit, bringing it closer to its gross operating margin than many investors would be comfortable with. This factor, coupled with poor returns on their forays into the data center and AI markets, has led many investors to choose more profitable companies for their portfolios.
Most Recent AMD Stock Performance
Artificial intelligence is on everyone’s mind. It’s seeing training and use in a wide variety of fields. The biggest contender in the AI market has been NVIDIA, but AMD has moved into this sphere. However, despite beating their goals and retaining an excellent gross profit margin, their stocks continue to plummet.
This downturn is primarily because AMD is projecting fewer sales than most analysts are looking for in this field. AMD projected $5.7 billion in sales, while analysts desired $5.81 billion. It may not seem like a lot at first glance, but $110,000,000 is more money than most of us will ever even hope to consider seeing in our lifetimes.
Additionally, chip stocks have generally started to see a downturn recently. So, AMD’s drop isn’t so unusual. NVIDIA’s stock slipped 5%, Marvell dropped 6%, and even Intel saw a downturn of about 3%. This drop for AMD is really just following the trend of the broader semiconductor industry.
However, despite these setbacks, AMD is establishing itself nicely in the AI generative field and proving itself by beating internal goals and making good profits. Even though its stock prices are declining, they’re still up 50% from last year in total. We should see the stocks start to bounce back as we enter 2024, as this typically happens in situations like these.
Is AMD Stock a Buy, Sell, or Hold?
AMD stock is fairly cheap right now and is projected to bounce back and grow as the company gains more of a foothold in the AI generative field. Thus, many experts are encouraging investors to consider buying AMD stock to cash in on the projected growth.
If investors already own AMD stock, experts indicate there is no need to rush to sell it. It’s probably going to be worth more as we move into 2024, so experts recommend holding it. Keep in mind this information is for informational purposes only, and should not be considered financial advice.
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