If you’re looking for winners in the markets right now, you’re likely thinking industries involving food, medicine, maybe even guns. But semiconductor firms like Advanced Micro Devices (NASDAQ:AMD)? That’s a tall order. Don’t read into this incorrectly — I’m not saying anything negative about AMD stock. Rather, I’m just skeptical that the environment is conducive for such technology-based investments.
Specifically, where AMD stock goes for the near and intermediate term depends on the economy. In that respect, we do have some good news. Primarily, after a bout of unnecessary partisan politics, the Senate approved a historic $2 trillion economic stimulus package. Actually, it’s a stimulus for the many industries that will receive support. For many working families, the package is more an emergency relief fund.
And that’s why I’m hesitant on AMD stock. Prior to our new normal, Advanced Micro Devices generated headlines for taking it to rivals Intel (NASDAQ:INTC) and Nvidia (NASDAQ:NVDA). Certainly, the company deserved the accolades. Not only did AMD pump out processors loaded with ridiculous performance stats, it also secured vital partnerships.
For instance, AMD inked a deal with my old stomping grounds, Sony (NYSE:SNE). Prior to this whole mess, you knew that the upcoming PlayStation 5, which will utilize Advanced Micro’s processors, would mean easy money for Sony.
Now I’m not so sure.
Sincerely, I hope that we don’t fall into a recession as it does no one any good. But given that the Wall Street Journal warns the coronavirus pandemic could cost five million jobs, you have to ask yourself: who’s going to buy a PS5 or any expensive, non-vital product?
If you’re bullish on AMD stock, that’s one of the main hurdles.
Pandemic Especially Hurts AMD Stock
I know that some of my InvestorPlace colleagues argue that we’ll eventually bounce back to normal. Though a serious problem, the coronavirus doesn’t represent an existential threat. That may well be the case.
However, keep in mind that our so-called recovery has been a disjointed one. For example, the Economic Policy Institute notes that nominal wage growth between 2007 through early 2020 “has been far below target.” In other words, before the coronavirus struck, we were not enjoying a comprehensive recovery.
Logically, the recovery from the coronavirus may still put us on a net negative path. After all, that $2 trillion stimulus didn’t just come out of nowhere.
But let’s say that the bulls are correct, and we quickly start a V-shaped recovery. In that situation, companies that had momentum — such as Advanced Micro – will have incurred the greatest loss.
Let’s go back to last year. One of the overriding themes was that AMD was bringing the heat. During Computex 2019, the tech firm introduced processor after processor. And they weren’t just competing on price either. No longer content to be the “poor man’s Intel,” Advanced Micro battled on the premium end of the spectrum.
With Intel suffering from supply chain issues for their next-generation chips, this was the perfect opportunity to bring the hammer down. That’s exactly what they did. Unsurprisingly, AMD stock continued to impress in the markets.
Up until late 2019, Intel was losing the war against its smaller rival. From processor performance to the workstation, Advanced Micro was putting on a clinic. Unfortunately for Intel, no market was safe.
Then, the coronavirus happened, bringing everything to a halt. Yes, that includes Intel. But for INTC, it’s the first time in a long time they’re on level ground with AMD.
A Rough Industry All Around
Does that mean investors should buy INTC (or NVDA) instead of AMD stock? I don’t think you can necessarily say that. In about a one-month period, the coronavirus transitioned from a conspiracy theory to an unprecedented crisis. Therefore, I want to get a better read on the economy before gambling too heavily on this market segment.
Further, we should appreciate that the U.S. leads the world in confirmed coronavirus cases. Mathematically, this means that our infection curve will have a longer tail than China’s. Fortunately, I’m seeing strong evidence that cases are declining on a percentage basis. Still, it will take longer for our curve to finally flatten.
Until then, and likely beyond that time, consumers will focus on the essentials, such as not losing their jobs. And really, who knows when the masses will finally feel comfortable and confident enough to buy discretionary items? Because of this awful, lingering question, I’m going to sit on the sidelines regarding AMD stock.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare. As of this writing, he owned shares of SNE.