Looking for a Chip Stock? Don't Buy This One

NASDAQ: AMD | Advanced Micro Devices Inc. News, Ratings, and Charts

AMD – While the new gold rush in generative A.I. might have enlarged the overall pie for semiconductor businesses, a slump in PC sales globally and geopolitics present more pressing near-term challenges for Advanced Micro Devices (AMD). Read on….

Advanced Micro Devices, Inc. (AMD) has slumped 5% over the past month and 21.2% over the past year to close the last trading session at $81.16. While it is still trading above its 50-day and 200-day moving averages of $74.74 and $78.35, respectively, NVDA’s weak fundamentals and near-term uncertainties carry with it risks of further downside, which investors would be wise to avoid, despite the ongoing hype regarding AI.

The global semiconductor company’s two segments are computing and Graphics; and Enterprise, Embedded, and Semi-Custom. It serves original equipment manufacturers (OEMs), public cloud service providers, original design manufacturers, system integrators, independent distributors, online retailers, and add-in-board manufacturers.

Let’s closely examine its fundamentals:

Ebbing Financial Performance

For the fourth quarter of the fiscal year, which ended December 31, 2022, AMD’s revenue increased 16% year-over-year to $5.60 billion, while its gross profit increased 17.8% year-over-year to $2.86 billion. Although this was primarily driven by growth across the Embedded and Data Center segments, it was partially offset by lower Client and Gaming segment revenue.

During the same period, AMD’s operating income decreased 5% year-over-year to $1.26 billion. As a result, the company’s net income and EPS decreased 0.8% and 25% year-over-year to $1.11 billion and $0.69, respectively.

AMD’s total liabilities stood at $12.83 billion as of December 31, 2022, compared to $4.92 billion as of December 25, 2021.

Underwhelming Near-Term Prospects

For the first quarter of 2023, AMD expects revenue to be approximately $5.3 billion, plus or minus $300 million, a decrease of approximately 10% year-over-year, due to a decline in Client and Gaming segments, which would be only partially offset by growth in Embedded and Data Center segment.

Consequently, AMD’s EPS is expected to decline 50.4% and 12.9% year-over-year to $0.56 and $3.05 for the first quarter and the entirety of fiscal 2023.

Stretched Valuation

In terms of its forward P/E, AMD is trading at 26.62x, 30.9% higher than the industry average of 20.34x.

Similarly, AMD’s forward EV/Sales and EV/EBITDA multiples of 5.39 and 16.35 are higher than the respective industry averages of 2.79 and 13.04.

AMD’s forward Price/Sales ratio of 5.51 also compares unfavorably to the industry average of 2.75.

POWR Ratings Reflect Mixed Outlook

AMD’s bleak outlook is reflected in its POWR Ratings. The stock has an overall rating of D, which equates to a Sell in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. AMD has a grade D for Growth consistent with the forecasts of a slump in PC Sales as consumer demand softens.

In addition, AMD’s high beta of 1.98 and equally high spread between its 52-week high and low prices of $125.67 and $54.57, respectively.

Unsurprisingly, AMD ranks #83 of 91 stocks in the B-rated Semiconductor & Wireless Chip industry.

Click here for additional ratings for Value, Sentiment, Momentum, and Quality for AMD.

Bottom Line

Fundamentals apart, On October 7, 2022, the U.S. imposed export restrictions on advanced semiconductors and chip-manufacturing equipment to prevent American technology from advancing China’s military power. This followed August 31 instructions to AMD from U.S. officials to stop exporting its top artificial intelligence chip to China.

With Xi Jinping taking a rare direct aim at the U.S. in his speech, tensions are likely to remain elevated in the foreseeable future.

Given its relatively high valuation and the near-term uncertainties, it could be wise for investors to avoid this stock for now.

Stocks to consider as alternatives to Advanced Micro Devices, Inc. (AMD)

Given its uncertain short-term prospects and the recent surge in stock price, the likelihood of AMDs stock outperforming in the weeks and months ahead appears low. However, there are many industry peers with much more impressive POWR Ratings. So, consider these 3 A-rated (Strong Buy) or B-rated (Buy) stocks from the Semiconductor & Wireless Chip industry instead:

Taiwan Semiconductor Manufacturing Company Limited (TSM)

Broadcom Inc. (AVGO)

STMicroelectronics (STM)

Consider This Before Placing Your Next Trade…

We are still in the midst of a bear market.

Yes, some special stocks may go up. But most will tumble as the bear market claws ever lower.

That is why you need to discover the brand new “Stock Trading Plan for 2023” created by 40-year investment veteran Steve Reitmeister. There he explains:

  • Why it’s still a bear market
  • How low stocks will go
  • 9 simple trades to profit on the way down
  • Bonus: 2 trades with 100%+ upside when the bull market returns

You owe it to yourself to watch this timely presentation before placing your next trade.

Stock Trading Plan for 2023 > 

AMD shares were trading at $82.25 per share on Tuesday afternoon, up $1.09 (+1.34%). Year-to-date, AMD has gained 26.99%, versus a 4.11% rise in the benchmark S&P 500 index during the same period.

About the Author: Santanu Roy

Having been fascinated by the traditional and evolving factors that affect investment decisions, Santanu decided to pursue a career as an investment analyst. Prior to his switch to investment research, he was a process associate at Cognizant. With a master's degree in business administration and a fundamental approach to analyzing businesses, he aims to help retail investors identify the best long-term investment opportunities. More...

More Resources for the Stocks in this Article

TickerPOWR RatingIndustry RankRank in Industry
AMDGet RatingGet RatingGet Rating
TSMGet RatingGet RatingGet Rating
AVGOGet RatingGet RatingGet Rating
STMGet RatingGet RatingGet Rating

Most Popular Stories on StockNews.com

3 AI Stocks to Buy Now

AI regulation is a foregone conclusion, it's just left to be determined who in government will formulate the rules and enforce them. Elon Musk thinks a whole new agency will be needed to enforce the massive amount of regulation coming down the road. These three companies, Red Violet (RDVT), Akamai (AKAM) and Cisco (CSCO), are at the forefront of companies implementing those regulations, and should see a pretty penny in profits for their work.

Stock Alert: Just Another BUY THE DIP Opportunity

Traders threw a tantrum after the Fed shared details on their rate hike plans. This has the S&P 500 (SPY) hitting the lowest level in quite a while. Gladly, things are not as dire as they seem. That is why Steve Reitmeister shares his latest insights to explain why a bull market is still in place...and how to target the best stocks and ETFs for the days ahead. Read on for the full story below...

My Favorite Energy Stock Under $10

Oil is back in the headlines as it has rocketed higher on a combination of factors over the past two months. This means oil stocks should definitely be back on your radar. And this under $10 oil stock has popped up on the POWR Ratings radar, Battalion Oil (BATL).

Coca-Cola (KO) and 2 More Beverage Stocks – Buy or Sell?

The beverage industry exhibits a bright outlook due to evolving consumer preferences amid rising health consciousness. Therefore, let us analyze whether leading beverage stocks Coca-Cola (KO), National Beverage (FIZZ), and Celsius Holdings (CELH) are Buy, Hold, or Sell now. Read more...

100 Best Stocks for October

Our computer models are dialed into the 100 best stocks for October 2023. What makes them “the best stocks”? Years of hard work to find the precise factors that lead to market beating stocks (SPY). Like our coveted strategy with an average annual return of +57.15%. And yes, it even produced impressive profits during the 2022 bear market. Now is the time to discover the winning stocks it is picking for the weeks and months ahead. Get full details below...

Read More Stories

More Advanced Micro Devices Inc. (AMD) News View All

Event/Date Symbol News Detail Start Price End Price Change POWR Rating
Loading, please wait...
View All AMD News