While concerns regarding the coronavirus from China continue to weigh on stocks more broadly, Advanced Micro Devices (NASDAQ:AMD) has also failed to elude the virus-induced madness. Down over 10% year to date, AMD stock is seemingly just as risky as many other stocks right now.
But is it really all doom and gloom for the stock? It’s possible that the coronavirus hysteria has put a smudge on an otherwise glamorous picture for AMD.
Consider that the S&P 500 is down 24% year to date, and suddenly the losses for AMD stock don’t look as ugly. But it’s still worrisome nonetheless.
Important Facts to Consider
There are few key points investors need to consider before slamming the sell button or the buy button on AMD.
First, let’s start with the bad. As mentioned earlier, Advanced Micro Devices hasn’t been able to dodge concerns regarding the coronavirus. A big part of this has to do with the fact that a significant portion of its revenue comes from China.
According to InvestorPlace contributor Larry Ramer, a 2018 Goldman Sachs estimate of AMD’s China-based revenue stood at 26%. While it’s unknown whether this figure has increased or decreased over the years, Ramer points out that AMD itself admits that its Q1 revenue guidance will be on the lower end of its projections.
With AMD anticipated to report earnings on April 28, the extent of the damage will become clearer soon. But given its prior reliance on China for revenue and the company’s attempt to dampen expectations, we can expect the results to be uglier than initially expected.
Still, on a more positive note, Advanced Micro Devices doesn’t anticipate the Q1 numbers affecting the guidance for all of 2020. In fact, it seems that much of the virus-related damage has already been overcome. That is, of course, assuming we trust the company’s assessment is accurate and not just damage control.
However, all of this comes alongside constantly rising competition from others within the processor and video card space. That includes household names like Intel (NASDAQ:INTC) and Nvidia (NASDAQ:NVDA). And that’s where much of the focus lies for most AMD stock investors — virus or no virus.
Reasons to Be Optimistic About AMD Stock
Although there are good reasons to be hesitant when it comes to AMD stock, there are also plenty of reasons for optimism. For example, while Advanced Micro Devices always has to contend with the likes of Intel and Nvidia, it’s doing a good job of keeping up.
In fact, several analysts believe that the company could exceed some of its rivals in the longer term. Specifically, much of its long-term bullish argument involves its developments in processors, which could place it ahead of Intel.
According to Harsh Chauhan of the Motley Fool, Advanced Micro Devices started 2020 on strong footing after Intel was slammed with supply issues and its “10-nanometer (nm) CPUs (central processing units) [failed] to perform as expected.” While most PC gamers still use Intel processors in their gaming rigs, according to a Steam survey that Chauhan references, the number of AMD processors on the field has increased roughly 2% over the past two months.
That might seem small, but it gains significance when you consider Intel’s latest performance and supply struggles and AMD’s continued strength.
Part of this strength can be attributed to AMD’s CEO Lisa Su, who has managed to develop an impressive strategy for the years ahead … at least in the eyes of Jefferies analysts. But these aren’t the only bullish analysts supporting AMD stock. InvestorPlace contributor Mark Hake points out several other analyst upgrades and forward-thinking commentary for AMD so far this year.
Clearly, AMD has significant Street support. Unfortunately, that can only power a stock higher for so long.
The key thing to look out for will be whether AMD can actually achieve its lofty goals amid the challenges it faces.
The Bottom Line on AMD
While Advanced Micro Devices might be gaining the upper hand over Intel when it comes to processors, one area where it seems to be lacking is in advancements in artificial intelligence. Its other key competitor, Nvidia, is making significant gains in this space, while AMD is lagging.
In fact, according to Ramer, “AMD’s deficit in AI chips is likely to hurt it in the short-term and medium-term. And since data centers’ use of AI is expected to accelerate in 2021, this issue will be an even bigger problem for AMD in the longer term as well.”
Ultimately, I think it will take more time for us to truly see where AMD will end up in the big tech race. But that doesn’t mean you should avoid it at all costs.
The company always seems to position itself as a viable and more affordable alternative to its competitors, and as long as it maintains this strategy while continuing to keep up its pace in cutting-edge technological advancements, I think AMD stock is worth a look. That’s especially true when many investors are fearful.
Robert Waldo has been a web editor for InvestorPlace since 2016. As of this writing, he did not hold a position in any of the aforementioned securities.
