What’s next for Advanced Micro Devices (NASDAQ:AMD)? Shares in the CPU and GPU chip giant held steady during the novel coronavirus. But, lately, as investors start to pivot away from large-cap tech names, and dive back into the hard-hit airline, casino, and retail sectors, AMD stock has tread water.
Trading for between $50 and $55 per share, it seems the company is on the razor’s edge. Either a projected V-shaped recovery sends shares back to past highs (and beyond). Or, shares pull back from their current price level, as a weaker economy means they fall short of prior growth projections.
Granted, I’ve been on the wrong side of AMD stock for the past year. When shares were trading around $30 per share, I thought the company was overvalued. As the stock trekked towards $60 per share, I doubled-down on my bearish outlook. Even as shares took a dip during last March’s sell-off, I believed shares could head even lower.
But, despite so many wrong takes, I believe we are fast approaching the end of this company’s “hot stock” status. Between a continued recessionary environment affecting sales, and investors losing their love for large-cap tech, shares could fall lower in the coming months.
Sure, it seems things could go either way. But, as shares remain priced-for-perfection, the best bet may be to go against the crowd and sell AMD stock.
Future Downside and AMD Stock
In my last Advanced Micro Devices writeup, I discussed how potential lower demand from customers and business could mean the company falls short of growth expectations.
Also, the return of U.S.-China trade tensions is another bit of bad news for this company’s near-term prospects. But, given that shares are holding steady at today’s prices, investors don’t seem too concerned.
Sure, Wall Street has eased off the gas when it comes to big tech stocks. The focus has shifted toward a swift rebound in stocks hard-hit by the pandemic. But, with Fed Policy propping up stocks overall, it’s no surprise this recent pivot hasn’t resulted in lower prices for names like AMD.
Yet, downside could be just over the horizon. As this commentator recently noted, this stock can’t maintain an extremely high valuation without revenue growth to match. And, with the company’s guidance implying sales could fall quarter-over-quarter, it doesn’t look like today’s forward price-to-earnings ratio of 51.6 is sustainable.
Simply put, if the growth train is slowing down with AMD, there’s a good chance shares fall back to the $40 price level. Or lower. But that’s not all! Other risks are at play.
On the surface, this company continues to look like a winner. Yet, if these risks come to fruition, Wall Street’s continued love for this stock could soon fade.
Other Risks to Consider
I concede there are many reasons why betting against Advanced Micro Devices is a risky move. Firstly, this prior “also-ran” has made significant gains in the CPU and GPU markets at both Intel’s (NASDAQ:INTC) and Nvidia’s (NASDAQ:NVDA) expense.
With products that are technologically competitive, it’s easy to see how this company could continue chipping away at its previously much-larger rivals.
Yet, this may not be enough to send shares higher. Investors have priced-in AMD’s ascension to formidable competitor, but now, with risks accelerating, the company’s salad days may now be over.
What am I talking about? Besides the potential slowing growth mentioned above, there’s the China factor. As InvestorPlace’s Larry Ramer discussed June 3, continued tensions between the U.S. and China don’t bode well for Advanced Micro Devices stock.
Not just because China makes up around a quarter of the company’s sales. With the world’s second-largest economy looking to reduce its dependence on American technology, China is further developing its own homegrown semiconductor industry.
In other words, Chinese demand for American chips could soon be on the decline. Also, Ramer discussed in his article why AMD continues to trail its rivals when it comes to advances in AI (artificial intelligence). If the company continues to fall behind as Intel and Nvidia make gains in this emerging tech market, it’s hard to see shares maintaining its current premium valuation.
Sell Advanced Micro Devices Now
It doesn’t make much sense to me why this stock has yet to take a dive. Granted, recent stock market strength (driven by both the Fed and FOMO) partially explains why the sell-off hasn’t gotten underway. But, with the aforementioned risk factors on the horizon, it’s tough to see how this company can remain a Wall Street darling for long.
So, what’s the play now? Sell AMD stock, while shares tread water. A big drop could be just around the corner.
Thomas Niel, contributor to InvestorPlace, has written single-stock analysis since 2016. As of this writing, Thomas Niel did not hold a position in any of the aforementioned securities.
