The Key Worry for AMD Stock: History Repeating Itself

Advanced Micro Devices (NASDAQ:AMD) stock unquestionably has been a smart pick. The AMD stock price sat below $2 as recently as 2016. It’s now above $29. But those huge gains have been accompanied by volatility, as Advanced Micro Devices stock has made more than a few huge moves.

The Key Worry for AMD Stock: History Repeating Itself

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Indeed, AMD stock went on a roller-coaster ride just last year. AMD was at $10 in April – and $30+ in September. From there, however, Advanced Micro Devices s stock started to weaken. A market-wide bloodbath – which was particularly pronounced in the chip sector – cut the AMD stock price in half by the end of 2018.

Long-term investors who have ridden out the volatility for the most part have done well. But the entry point matters. Indeed, AMD stock price actually is down 11% over the past year. For investors looking for an entry point – or looking to protect their profits – there’s a near-term risk (or opportunity, depending on whether they own AMD) worth noting. Specifically, 2019 does look a little bit like 2018.

How 2018 Played Out for the Market – and Advanced Micro Devices Stock

Last year’s fourth quarter was ugly for U.S. equities on the whole. The S&P 500 dropped 14%. But for large-cap chip names, the selling was even worse. AMD stock tumbled 40%, and Micron (NASDAQ:MU) 30%. Nvidia’s (NASDAQ:NVDA) shares lost over half of their value. Only Intel (NASDAQ:INTC), which managed a flat performance, and Texas Instruments (NASDAQ:TXN), which beat the market with a 12% fall, emerged relatively unscathed.

In some cases, there were company-specific reasons for the selling pressure. Nvidia and AMD were dealing with a sudden “crypto hangover.” The retreat of memory prices hurt Micron. But there were broader issues at play, too. Cyclical stocks started declining last summer, and then those fears reached the entire stock market. Those concerns had an amplified effect on the notoriously cyclical (if not always macro-driven) semiconductor sector.

2019 does look different so far. First, the S&P 500 was at all-time highs heading into the October selloff. That’s not quite the case at the moment, though the index did come within a percentage point of new highs last month. Second, cyclicals are doing rather well, even with fears of a recession seemingly everywhere at the moment.

Does 2019 Look Like 2018 for AMD Stock?

That said, there are some similarities. As I’ve noted repeatedly of late, high-valuation growth names have broken down, with the likes of Shopify (NYSE:SHOP) and Roku (NASDAQ:ROKU) seeing huge plunges over the last several  weeks.

It’s certainly possible that those growth names – like cyclicals last September – are the proverbial canary in the coal mine. In both cases, investors are backing away from risk. If  that trend continues, it can impact the broader market.

And chip stocks are seeing some weakness. MU stock sold off after a mixed earnings report. And while AMD and Micron play in very different end markets with very different products, the two stocks have foreshadowed the performance of one another on multiple occasions. AMD itself is back to the levels at which it traded before a solid Q2 report in early August.

Even after those declines, Advanced Micro Devices stock is in a different spot than it was a year ago. Again, last October the AMD stock price had more than tripled. AMD stock did double from its December 2018 lows, but profit-taking may already have occurred, at least to some extent.

Still, for AMD and the market as a whole, it’s hard not to be at least a little worried about history repeating itself. Last year’s big selloff began with modest declines, and that’s exactly what chip stocks, including AMD stock, are doing at the moment. Valuation concerns have returned to the market and AMD stock, particularly by semiconductor stock standards, is not cheap.

Over the long-term, I still like AMD stock below $30. Its market share gains suggest that it has years of growth ahead of it. But I wrote last month that in the near-term it was likely to be choppy, and at the moment its price action looks alarming. I wouldn’t expect AMD stock price to test $15 again, as it did last December. But I would not be at all surprised if  AMD stock is lower at the end of the year than it is right now

As of this writing, Vince Martin has no positions in any securities mentioned.

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