Semiconductor firm Advanced Micro Devices (NASDAQ:AMD) has had a rough week. AMD stock lost more than 6% overnight after news that the U.S. Federal Reserve raised interest rates at its December meeting.
Of course, the Fed’s decision was bad news for more than just AMD stock, but the company’s share price has been hypersensitive to the headlines over the past few months and this was no different.
The drop for AMD has investors wondering whether the chipmaker is worth picking up and at $18 per share, I’d say the answer is yes.
Rate Hike Woes
The Fed’s rate hike certainly isn’t good news for Advanced Micro Devices. AMD holds a fair amount of debt and the company generates just enough cash to pay down those obligations.
The reason a rate hike is such bad news for AMD is that many are expecting the firm to raise its debt obligations in the years to come, something that will be considerably more expensive than it has been in the past.
The Upside
While additional debt will become more expensive for AMD, the company also has some positive catalysts on the horizon that are worth considering. For one, the company looks likely to charge past major rival Intel (NASDAQ:INTC) with its 7-nonometer chips in 2019.
INTC has been struggling with production issues with its 10nm chips, so if AMD plays its cards right and brings its own 7nm chips to market quickly and without issue, it will be a major catalyst for AMD stock price.
AMD is also gaining on NVIDIA (NASDAQ:NVDA) in the graphics card space after NVDA’s latest release received a muted reaction when they came to market earlier this year. That means 2019 also holds a great deal of potential for AMD in the graphics card space as there’s a window of opportunity for the company to grab some of NVDA’s marketshare.
With AI growing rapidly and the demand for GPUs high, AMD has a solid long-term growth story. However, as I pointed out before, the stock is highly susceptible to the news cycle, something that investors would have to be willing to stomach if they jump on board.
Stock Catalysts
However, some of those yo-yo bounces look likely to be in favor of the bulls in the coming months as AMD makes its way onto the NASDAQ-100 index.
Earlier this week it was announced that the stock will be added to the list of NASDAQ’s 100 largest non-financial stocks, a move that doesn’t have any major impact on AMD’s overall growth story but could give the share price a bump heading into the new year. RBC Capital analyst Mitch Steves said he thinks the news will take AMD higher next week.
On top of that, some are expecting AMD’s management to release an updated long-term financial model during upcoming quarters since the firm is close to hitting all of its previously set goals.
Not only that, but the targets were set for 2020, which is fast approaching so a new set of goals is a likely next-step. If management does release a new, more ambitious set of goals in the coming quarters, that will likely improve investor confidence and therefore give AMD stock a bump.
What About Cryptocurrencies?
The sharp decline of cryptocurrencies has been detrimental to AMD investors, but the challenges that raincloud has created are short-term. The firm’s processors are vital for a wide variety of industries including gaming and AI, two segments that are likely to continue growing and becoming more complex- thus increasing the need for more advanced chips.
The Bottom Line
Advanced Micro Devices is caught in a yo-yo that, as Luke Lango put it, has kept AMD stock in neutral. The firm was hurt badly by news of the Fed’s rate hike, but the firm’s long-term growth story remains intact.
Investors are likely to see AMD stock make some gains in the months ahead as the news cycle is likely to swing in AMD’s favor. I think the firm has some strong quarterly reports on the horizon and updated long-term financial goals would certainly be a catalyst for AMD stock.
As of this writing, Laura Hoy did not hold a position in any of the aforementioned securities.
