If you bought Advanced Micro Devices (NASDAQ:AMD) stock at the end of last year, you’re probably still pretty happy with its performance. Year-to-date the gain in the AMD stock price has been nearly 65%. Since the end of July, it has been a different story, though.
After recovering from a post-earnings bath, AMD stock is down 11.5% since its July high of $34.39, after shedding another 1.84% on Wednesday for a $30.42 close. In fact, since the end of July, the stock is being significantly outperformed by both of its key rivals: Intel (NASDAQ:INTC) and Nvidia (NASDAQ:NVDA).
If you bought Advanced Micro Devices stock when it crashed last fall after the bottom fell out of the cryptocurrency mining market, that’s one thing. Good call. But what about now? Does this slide mean it’s time to make a long-term investment in AMD?
Advanced Micro Devices Has Been a Company On the Rise
The story of Advanced Micro Devices over the past several years has been one of a company on the rise with a canny CEO, a focus on leapfrogging the competition and some stellar product releases have paid off in a big way. AMD is once again a serious contender against market leaders Nvidia in the graphics card industry, and Intel in PC processors.
After falling below 20% of the market for computer processors in 2016, AMD’s Ryzen CPUs have helped the company to steadily claw its way up to 30%. A similar pattern has been showing in the market for computer video cards. AMD had dropped to 20% of global sales by 2015, but advanced new Radeon releases have pushed it to 32% of the market against Nvidia’s 68%. Advanced Micro Devices has also scored the contracts to supply custom GPUs for the forthcoming PlayStation 5 and Xbox Scarlett game consoles.
The out-of-this-world demand for video cards by cryptocurrency miners was a bonus that lit a fire under AMD stock. When the inevitable crash came last fall — bringing a glut of unsold video cards — it hurt, but it hit Nvidia just as badly. By this summer, the crypto hangover had been left behind with an AMD stock price that crept past its crypto-era peak.
NVDA and INTC Are Currently Outperforming AMD Stock
Things got a little hairy for AMD stock at the end of July. The company reported Q2 earnings after the bell on July 30. Despite hitting earnings targets and beating analyst expectations for revenue, the fact that revenue declined 13% compared to last year caused some consternation. AMD also revised its full-year 2019 guidance, reducing its revenue gain to a mid-single-digit increase over 2018, after previously setting it at a high single-digit increase.
The market did not react well to this news, and Advanced Micro Devices stock was walloped, closing down 10% the next day. Within a week, it had dropped below $28. That was followed by a wild ride in August, when AMD clawed its way back to pre-earnings levels, then went on a roller coaster ride while continually losing ground.
At this point, AMD stock is once again down 10% from July 30 — the day it reported Q2 earnings. During the same period, NVDA is up 2.6%, while INTC has held steady. All three stock have been affected by outside forces (most notably the ripple effects of the U.S. trade war with China), but Advanced Micro Devices stock is definitely underperforming compared to the competition.
Is the Current AMD Stock Price Attractive Enough to Buy?
The question potential investors are asking is whether the drop in AMD stock makes now a good time to get in on the action. Analysts have mixed feelings on that front.
The trade war could have further impact on sales of computer components and if it worsens, it could trigger a recession — further cutting consumer discretionary spending on items like new PCs, component upgrades and game consoles. On the other hand, next year should see a recovery in custom GPU sales as PlayStation 5 and Xbox Scarlett production ramp up.
Over the past three months, the number of “buy” recommendations has slipped, while “hold” has become the dominant recommendation. With an average 12-month price target of $32.63, that makes sense. Even after the slide since the end of July, at current prices AMD stock has little upside, just 7% or so. If you’re hoping to pick up Advanced Micro Devices on the cheap, it probably makes sense to hold on in the hope that AMD slips further.
As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.