The past three months have been a roller coaster ride for semiconductor firm Advanced Micro Devices (NASDAQ:AMD). AMD stock had a brief stint above $30 per share, but failed to hold on to those gains for more than a few weeks.
Now with AMD coming up on its Q3 earnings at the end of October, value investors might start sniffing around Advanced Micro Devices stock. However, jumping in with both feet right now might not be your best option. Instead, a little patience could go a long way when it comes to AMD.
AMD Stock and Semiconductor Uncertainty
One major reason that October might not be the best time to pick up AMD stock is because the industry as a whole is under a lot of pressure. That means that news regarding Advanced Micro Devices won’t be the only thing driving AMD stock’s movements. Competitors like Nvidia (NASDAQ:NVDA) will also be under a microscope and any inkling of negativity could result in an exodus from the semiconductor space.
Not only that, but the market as a whole could see a downturn. Some analysts believe that the end of this year could pan out similarly to the end of 2018— with a nosedive. That means two things for people looking to buy AMD stock: first, you should be prepared for turbulence no matter what happens to the underlying business, and second, there’s likely going to be a better entry point on the horizon.
Weak Year End for AMD Stock
Another reason you might want to hold off on Advanced Micro Devices right now is the fact that the firm is likely to be stuck navigating through turbulence for the remainder of the year. There are two major reasons for that: the trade war and valuation.
On the valuation side, investors have to take into account that despite having a difficult few months, AMD’s stock price is still 40% higher than where it was a year ago. That’s not to say the firm doesn’t deserve a boost — the firm has a lot going for itself. It’s about to come out with an upgraded line of its Ryzen processors that are expected to dominate the marketplace.
Plus we’ve seen AMD work its way further into the data center industry with Rome, its latest server processor. Rome has been a major draw for big name clients like Twitter (NYSE:TWTR) that have opted to use AMD chips to develop its platform.
While all of that is great news for AMD stock, it’s also been priced in. Investor excitement over these catalysts is already baked into AMD’s share price which makes now a questionable time to buy. While the firm’s long-term future looks bright, all the hype adds a layer of risk that any nugget of bad news could take the share price lower.
Trade War Concerns
Unfortunately, we are unlikely to make it through the rest of 2019 without some bad news marring AMD and its semiconductor peers. The trade war between the U.S. and China is showing no signs of slowing, and while the semiconductor space has been able to mitigate the damage so far, new rounds of tariffs would almost certainly have a meaningful impact.
Trade tensions have become such a market mover that even rhetoric that investors deem negative has the potential to hurt semiconductor stocks.
2020 Looks Bright
With all that in mind, investors shouldn’t totally discount Advanced Micro Devices stock. The company has a solid long term future and if some of its future bets pay off, the upcoming year could be a bright one. The data center industry is likely where semiconductor players will win and lose over the next five years. As Artificial Intelligence and cloud computing get more advanced, the need for powerful chips that use minimal power will grow significantly. Right now AMD looks like a front-runner that will continue to grab market share from its rivals.
Plus, 2020 will be a big year for new gaming consoles, a space that AMD has room to grow. This year’s demand for AMD’s semi-custom chips was disappointing, but some say that’s because players are holding off on purchasing new consoles until next year when the latest models come out. That means 2020 could hold promising results for AMD in that industry, which would help push the share price higher.
The Bottom Line on AMD Stock
AMD stock isn’t through the worst of it just yet. If Advanced Micro Devices is already in your portfolio I wouldn’t sell, I’d batten down the hatches. If you’re considering a position, patience might pay off as I’m expecting a bumpy ride into the new year. Wait for AMD to make its way below $27 before becoming a buyer.
As of this writing Laura Hoy did not hold a position in any of the aforementioned securities.