Why is AMD's stock price falling?
Hi mooers,
Driven by a surge of investor interest in artificial intelligence shares, $Advanced Micro Devices (AMD.US)$'s stock price soared 128% throughout 2023, and reached a new record level in early March 2024. However, since then, the stock has dropped about 24%, the largest decline in the $PHLX Semiconductor Index (.SOX.US)$.
This decline has left investors wondering, why is AMD's stock price falling? Is the pullback a buying opportunity?
What happened to drive AMD down?
In 2021, AMD's stock experienced a downturn due to the cyclical dip in PC sales. However, the stock price rebounded from the prior year as the demand for its AI chips surged.
Subsequently, AMD's data center segment, including AI processors and server chips, grew 38% to $2.3 billion in Q4 2023. This segment now forms 37% of the company's revenue, up from 28% the previous quarter.
Currently, AMD is concentrating on the production of AI chips, attempting to capture a larger share of the market from leading competitor $NVIDIA (NVDA.US)$.
However, existing concerns about AMD's future competitive edge grew after Nvidia announced its new Blackwell AI chip lineup. Once the news broke, AMD stock price dropped.
In addition, another AMD competitor, Intel, launched its AI chip Gaudi 3 last week. Now, the AI chip market is seeing a market share competition among the three giants: Nvidia, AMD, and Intel $Intel (INTC.US)$.
However, some analysts remain optimistic about AMD's prospects. Analyst Harsh Kumar from Piper Sandler remains bullish about AMD, emphasising its AI chip MI300's competitive pricing and performance, along with its potential to succeed in the server CPU arena.
How is AMD stacking up against its peers?
On April 4th, AMD's stock price fell by more than 8%, taking the biggest hit out of all manufacturers in the chip sector. Anxiety over interest rate cuts and a reassessment of the company's valuation prompted a downturn in investor sentiment.
Compared to its peers, AMD looks more expensive in its valuation. As of Monday's market close, AMD's stock was trading at a forward P/E ratio of 44.6, a multiple higher than that of other AI-related stocks, including: Intel at 26.7 times, Nvidia at 34.5 times, and $Broadcom (AVGO.US)$Broadcom at 26.1 times.
The coupling of a higher valuation compared to its peers, along with increased market competition, might be the reason for AMD's stock downturn.
The next potential catalyst for AMD stock could be their Q1 earnings report, which is due at the end of April or early May. If you're following AMD, don't miss it!
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Sources: moomoo, MarketWatch, Investor's Business Daily, Reuters, Bloomberg, Benzinga, Investopedia, koyfin. Data as of 04/15/2024.
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Disclaimer: Moomoo Technologies Inc. is providing this content for information and educational use only.
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