Chipmaker Advanced Micro Devices (NASDAQ:AMD) saw its stock begin to recover after taking a hit as a result of first-quarter earnings. The company warned that the novel coronavirus pandemic is going to result in lower than expected revenue in the second half of 2020. The market reacted to that news by shaving 10% off AMD stock over the next few days of trading.
Before it fully recovers, is now the time to take advantage and buy Advanced Micro Devices shares?
Q1 and the Coronavirus
On April 28, AMD reported its first-quarter 2020 earnings results. Revenue of $1.79 billion was up 40% year-over-year. Adjusted earnings per share were 18 cents versus 6 cents a year ago. Those number indicate AMD escaped the worst of the pandemic’s effects as it tore through China.
However, the company issued guidance warning that the pandemic will be felt in the second half of 2020:
“Despite expectations of weaker COVID-19 related consumer demand in the second half of the year, AMD expects 2020 revenue to grow by approximately 25 percent, plus or minus 5 percentage points, compared to 2019 and non-GAAP gross margin to be approximately 45 percent.”
That news sent AMD down in trading (previous guidance had been for revenue up 28% to 30%). Within three days, it lost 10%.
Despite the many negative effects of the coronavirus — including the revised 2020 revenue guidance — AMD stock is edging higher. The year has seen mixed results for AMD’s primary rivals. Nvidia (NASDAQ:NVDA) has seen its stock post 37% growth for 2020. Intel (NASDAQ:INTC) is nearly flat so far this year.
The Risk in China
One issue that has the potential to slow AMD is China. Specifically, the potential for the trade war with China to heat up again. In recent days, President Donald Trump has been threatening the possibility of new tariffs against China in retaliation for the country’s role in the coronavirus pandemic. Advanced Micro Devices is exposed to any fallout, should tensions escalate. Roughly 26% of AMD’s revenue is generated in the Chinese market, while 30% of its products are manufactured in that country.
The company would actually be in a better position than its primary rivals — when the trade war began in 2018, it was estimated that Nvidia relied on the Chinese market for 56% of its revenue, while Intel had a 40% exposure — but re-igniting the trade war with Chine would still be bad news for AMD shareholders.
The Bottom Line on AMD Stock
At this point, most investment analysts are taking a cautious approach to AMD stock. Advanced Micro Devices once again has a solid lineup of new processors and graphics cards. The company shows every sign of continuing to relentlessly nibble away market share from Intel and Nvidia. The fall launch of a hotly anticipated new generation of video game consoles equipped with custom AMD chips is another win.
However, that has to be balanced against the coronavirus effect. While AMD stock has bounced back from the March market sell-off, the company is not immune to coronavirus-related factors. These include production disruption, store closures, and layoffs resulting in weaker consumer demand. AMD has already warned that its projected 2020 revenue is going to be lower than originally expected.
Given that AMD is currently trading below its 2020 (and all-time) high close of $58.90, is now the time to buy?
Two InvestorPlace contributors offer different takes. Faisal Humayun says AMD’s fundamentals make a strong case for future growth, and support a purchase at current levels. On the other hand, Mark R. Hake feels AMD’s current valuation is too high and points out investors receive no dividend from the stock.
Given that AMD already topped analysts’ $54.50 median 12-month price target and the number of variables in play, I would say that now is not the time to take a chance on AMD stock.
As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.
