American chipmaker Advanced Micro Devices (NASDAQ:AMD) took it on the chin when fears about the novel coronavirus caused the historic stock market rout in March. How bad did it get for AMD investors? AMD stock went from a record high close of $58.90 on Feb. 19, to $38.71 less than a month later. More than a third of the company’s market capitalization was wiped out.
Most stocks dove in value in March, but what makes AMD different is how quickly it bounced back. It’s not back at those record highs yet, but at this point it has posted double-digit growth for 2020. Not bad all things considered. And if all the cards fall into place, this stock may have plenty of gas left in the tank.
Market Factors Look Good for AMD
The time to snap up Advanced Micro Devices at bargain basement prices was in mid-March. Congratulations if you did, because your investment should appreciate nicely. For everyone else? There are factors that suggest AMD is well-positioned to continue its recovery. It’s not out of the realm of possibility for the stock to top its February, all-time high close.
The coronavirus initially caused a larger than usual hit to PC sales. Thank supply chain disruption and store closures for that. However, with many companies adopting work from home policies for employees, PC sales have been on fire — especially laptop sales.
With its new Ryzen 4000 series of mobile processors, AMD is making a splash in the laptop market in 2020. PC makers including Microsoft (NASDAQ:MSFT) and Lenovo Group (OTCMKTS:LNVGY) have recently promoted new laptops with Ryzen processors. Many more have been announced, and that puts AMD in a position to win market share from Intel (NASDAQ:INTC). The company has spent the past two years doing just that in the desktop PC space. In fact, 2020 is on track to be the year of AMD’s laptop resurgence.
Speaking of taking market share from Intel, AMD’s second generation EPYC 2 sever processors are surging in popularity. More powerful and energy efficient than Intel’s offerings, EPYC processor have been winning big contracts as cloud computing companies accelerate investment in their data centers. In its latest win, AMD announced that Oracle (NYSE:ORCL) is adopting EPYC 2 processors for its Oracle Cloud E3 platform.
The hottest gifts this coming holiday season? Expect the new Xbox Series X from Microsoft and Sony’s (NYSE:SNE) PlayStation 5 to be big sellers. Who makes the high performance silicon in both of those next generation game consoles? The Xbox Series X and PS5 both use custom AMD chips.
Risks, Including Coronavirus
Good as all those positives sound, the rest of 2020 is not going to be a walk in the park. There are big challenges for AMD, any one of which has the potential to derail its recovery.
The coronavirus may have ended its disruption of the PC supply chain, but it’s possible that second or third waves could hit. If PC manufacturing (or game console manufacturing) is disrupted again, that will cut demand for processors. Not to mention the challenge it would pose to AMD’s own production.
The economic hit of the coronavirus pandemic is also a concern. Depending on how severe the damage is, it could result in a drop in demand for consumer PCs and game consoles. Companies could put off those expected data center server purchases.
Then there’s China. Trade relations between the U.S. and China are heating up again. Advanced Micro Devices is exposed to trade war fallout between the countries, with roughly 26% of its revenue and 30% of its manufacturing capacity reliant on the Chinese market.
Bottom Line on AMD Stock
The analyst community is generally looking more favorably on AMD stock than it was three months ago. However, they’re still taking a cautious approach.
Few analysts are suggesting anyone dump their AMD shares, but a slim majority continues to rate the stock as a hold. There is a consensus that Advanced Micro Devices is going to outperform other chip stocks, but the question remains what that is going to look like. The coronavirus, the economy and China are big wild cards.
So yes, there is some risk. But even at the height of the coronavirus panic, AMD issued guidance for 25% (plus or minus 5%) revenue growth for 2020.
South Korea’s sovereign-wealth fund (KIC) for one is convinced there’s still plenty of upside left in AMD stock. KIC — which had $131.6 billion in assets under management at the end of 2018 — made a big AMD purchase after the first quarter. The 308,770 shares KIC bought boosted the fund’s total holdings to 774,100 shares.
It may not be the bargain it was in mid-March, but AMD stock at $54.20 is still pretty tempting.
Louis Navellier had an unconventional start, as a grad student who accidentally built a market-beating stock system — with returns rivaling even Warren Buffett. In his latest feat, Louis discovered the “Master Key” to profiting from the biggest tech revolution of this (or any) generation. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.
