Should Investors Buy AMD Stock After a 33% Decline?

Semiconductors are essential in modern technology, powering everything from smartphones to vehicles. As the demand for Graphics Processing Units (GPU) escalates, particularly due to advancements in artificial intelligence (AI) and high-performance computing, Advanced Micro Devices, Inc. (NASDAQ:AMD) leads in innovation within the semiconductor sphere, particularly known for its cutting-edge microprocessors and graphics chips. However, after a significant rise in 2023 fueled by AI developments, the stock sharply declined, dropping 32.96% from a 52-week high of $227.30 on March 8, 2024.
This recent downturn poses a question: Should investors steer clear of AMD, or does this represent an opportunity to invest in a leading tech company at a reduced price due to the continued high demand for GPUs?
Advanced Micro Devices, Inc. Overview
Founded in 1969 and headquartered in Santa Clara, Advanced Micro Devices, Inc. (NASDAQ:AMD) is a significant force in the semiconductor industry, influencing sectors like data centers, gaming, embedded systems, and PCs. The company has been at the forefront of computing innovations, boasting a market capitalization of $248.3 billion.
Over recent years, AMD has solidified its position in the semiconductor market, making notable advances in CPU and GPU arenas, with products such as Ryzen processors and Radeon graphics cards gaining market share.
Over the past year, AMD shares have appreciated by 60.3%, surpassing the gains of the broader S&P 500 Index’s (NYSE:SPX) 26.6% and the S&P Semiconductor SPDR (NYSEARCA:XSD) 31.4%.
AMD currently trades at a forward earnings multiple of 9.71, which is a discount compared to peers like Broadcom Inc. (NASDAQ: AVGO) and Marvell Technology Inc (NASDAQ: MRVL).
AMD’s Q1 Performance
After releasing first-quarter earnings on April 30, 2024, AMD’s stock price dropped, even though its $5.5 billion revenue met expectations and showed a 2.2% year-over-year increase. The adjusted earnings per share rose to $0.62, slightly above forecasts.
The data center segment experienced an 80% revenue increase to $2.3 billion, propelled by the MI300 series, and the client segment saw an 85% rise to $1.4 billion, largely driven by Ryzen AI chips. Despite gaming and embedded segments downturns, projections indicate a recovery later in the year.
Additionally, MI300 accelerator sales surpassed $1 billion since the fourth quarter of 2023, with AMD’s processors being integral to the cloud operations of major firms like Google Inc. (NASDAQ:GOOG),, Inc. (NASDAQ:AMZN), and Oracle Corporation (NYSE:ORCL).
Looking ahead to the second quarter, AMD expects revenues of around $5.7 billion, which would mark a 4% sequential and 6% annual increase, with AI chip sales projected to hit $4 billion this year.
Analyst Views on AMD
Despite some analysts from firms like UBS Group AG (NYSE:UBS) and Bank of America Corporation (NYSE:BAC) lowering their price targets post-earnings, the overall sentiment remains overwhelmingly positive with a consensus rating of “Strong Buy”. Out of 34 analysts, 28 recommend buying AMD stock.
The average price target stands at $192.37, suggesting a potential 26.2% upside, while the highest target of $265 indicates a possible 73.9% increase.