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Two weeks after a big first quarter earnings beat, $Advanced Micro Devices(AMD.US)$ stock is sliding.
AMD stock has posted a double-digit loss over the past week and is now down around 30% for 2022.
Risks are there — including declining PC sales — but AMD stock at current prices offers significant long-term growth potential.
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Like many companies in the technology sector, Advanced Micro Devices (NASDAQ:AMD) has seen its shares slide in value. The selloff began at the end of November 2021 and continued in a year where macroeconomic concerns like inflation and interest rates have led to many investors abandoning growth stocks in favor of safer holdings.
The contrast has been particularly stark for AMD stock. AMD was the top performing stock in the S&P 500 for 2019 and placed in the top 10 in 2020. Even after last November's selloff, AMD shares still delivered a 57% return in 2021. This year has seen the selloff continue to the point of a 40% drop. There was a rally in early May when Advanced Micro Devices delivered a first-quarter earnings beat that included record quarterly revenue (up 71% year-over-year) and adjusted earnings-per-share (EPS) of $1.13 (up 117% YoY). The company's second-quarter guidance also beat analyst expectations.
However, the positive market reaction didn't last for long. In the past week AMD stock has slipped nearly 11%. It's not at 2022 low territory yet, but it's close. There are some risks to be aware of with the company, but for a proven growth stock with a bright-looking future, AMD stock is a buying opportunity.
AMD Advanced Micro Devices $99.04
Ryzen 7000 CPUs and Server Sales to Boost AMD Stock
In its latest quarter, AMD reported all its divisions posted double-digit growth. However, I want to focus on two areas in particular that will help to keep that growth momentum going over the next few years.
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First up is servers. With online shopping, streaming services, hybrid workforces, and online gaming all continuing to grow in popularity, the demand for servers has also been on the move. In the case of AMD, that has resulted in big growth for its EPYC server processors. In the last quarter, the company's Enterprise, Embedded and Semi-Custom segment revenue was up 88% YoY. Gross margin in general was up 2% YoY to 48%. AMD gives much of the credit for both to its EPYC sales. The market for servers is expected to continue growing — despite economic headwinds.
In fact, IDC expects growth to accelerate in 2022 compared to the past two years, and continue with a CAGR of 9% through 2026. It's not just net new hardware, there are a lot of aging servers that need replacing. Add in the AMD's recently completed Xilinx acquisition and its data center prospects look very strong indeed.
In addition, AMD just announced its new "Zen 4" Ryzen 7000 series processors. Ryzen chips have pulled AMD from an afterthought in the PC and laptop market to having its highest CPU market share ever, passing 25% in fourth quarter 2021. When the Ryzen 7000 series arrives this fall, expect the battle to carve out an even bigger chunk of the market to begin in earnest.
Risks: Slowing PC Sales, Will Game Console Sales Hold?
Besides macroeconomic factors, AMD stock does have a few company-specific risks to be aware of.
The first is that the PC market sales boom that was kicked off by the pandemic appears to have ended. AMD will be competing for a larger slice of a pie that is expected to very gradually begin shrinking again.
Another variable to consider is game console sales. The company's high-growth Enterprise, Embedded and Semi-Custom revenue also includes the sale of chips found in the Playstation 5 and Xbox Series X. Supply still can't keep up with demand on those game consoles, but they are now approaching a year and a half old. Eventually the rush to snap them up will fade to lower volume and that will impact AMD's revenue.
Bottom Line: Should You Buy AMD Stock?
Yes, there are some risks to aware of. That's one of the reasons while AMD stock rates only a "B" in Portfolio Grader. However, given the company's success over the past five years and the incredible performance of AMD stock since 2019, I'm pretty confident Advanced Micro Devices can roll with the punches. And with its next generation of processors ready to carve bigger chunks out of the PC and server markets, long-term growth prospects look solid.
At current prices AMD stock would make a great addition to your growth portfolio.
On the date of publication, Louis Navellier had a long position in AMD. Louis Navellier did not have (either directly or indirectly) any other positions in the securities mentioned in this article. The InvestorPlace Research Staff member primarily responsible for this article did not hold (either directly or indirectly) any positions in the securities mentioned in this article.
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