Should You Buy, Sell, or Hold Advanced Micro Devices Stock After the Plunge?

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Despite Chief Executive Officer (CEO) Lisa Su offering a strong outlook for Advanced Micro Devices (NASDAQ:AMD), investors panicked. AMD continued its plunge as it traded at fresh, new 52-week lows. At a forward price-to-earnings ratio of around 18 times, AMD is historically inexpensive. Sellers reacted to a weak outlook from Micron Technology (NASDAQ:MU). Additionally, Ohio may delay funding for Intel’s (NASDAQ:INTC) semiconductor factory.

With those negative events, is AMD a buy, sell, or hold?

Ticker Company Price
AMD Advanced Micro Devices, Inc. $78.16

Micron Warning Sent AMD Stock Lower

On Jun. 30, 2022, Micron posted revenue growing by 16.4% year-over-year to $8.64 billion. It earned $2.59 per share on a non-GAAP basis. Unfortunately, it surprised markets by posting a weak fourth-quarter outlook. Micron Technology President and CEO Sanjay Mehrotra said that the industry demand environment weakened. In response, Micron will moderate its supply growth in fiscal-year 2023.

The supply cut is shocking to semiconductor investors. For over two quarters, the industry grappled with a chip shortage. Micron’s warning contradicts the previously favorable market conditions.

On its conference call, Micron said that it led the memory market with DDR5. However, server CPU platform launch delays hurt DDR5 demand. Micron said that PC demand weakened in many geographies. This is a red flag for AMD stock.

PC unit sales will likely fall by almost 10% year-over-year. This is worse than the previous expectations of an approximately flat 2022 for PC unit sales.

PC Sales Decline

Source: Chart from Stock Rover

AMD’s fair value is around $95.

Micron has a strong product portfolio for DDR5 memory and solid-state storage. Conversely, AMD is dueling with Intel on the PC desktop and server market. AMD may trounce Intel on the latter, but investors cannot ignore the PC market weakness.

Gamers who delayed upgrading their system may do so again. In the last two years during the cryptocurrency boom, graphics card prices soared. Retailers demand triple the manufacturer’s suggested retail price for GPUs. This means that AMD will not get unit volume sales to lift.

Gamers must pay more for food and gas. They are prioritizing their spending on necessities. The steep slump in CPU and GPU prices is hurting AMD stock. Investors who chased AMD shares at above $110 will hold onto losses for longer.

According to Stock Rover, a quantitative stock research site, AMD has a fair value of $95.

The semiconductor firm’s growth score improved in the last five quarters. Similarly, the stock’s quality rose. Profit margins and higher return on investments increased AMD’s worth. Its acquisition of Xilinx will strengthen its high-performance and adaptive computing offering.

Is AMD Stock a Buy, Sell, or Hold?

Hold AMD. Server demand will not change. Corporations must update their technology, regardless of the economic slowdown. When it reports results in August, AMD may post weaker PC-related sales. Fortunately, the stock already reflects the worst-case scenario.

On the date of publication, Chris Lau did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Chris Lau is a contributing author for InvestorPlace.com and numerous other financial sites. Chris has over 20 years of investing experience in the stock market and runs the Do-It-Yourself Value Investing Marketplace on Seeking Alpha. He shares his stock picks so readers get original insight that helps improve investment returns.