Advanced Micro Devices (NASDAQ:AMD) stock is worth watching, as it is among the companies announcing first quarter earnings. Analysts expect little change from a year ago, sales of $5.42 billion and earnings of 60 cents/share.
While beating the number is usually a bullish sign, that didn’t help Nvidia (NASDAQ:NVDA) last month. AMD’s chief rival fell hard around stellar earnings. I advised readers to buy the dip, and it has since recovered most of the losses. Will the story be the same at AMD?
Earnings Jitters and AMD Stock
Going into earnings AMD stock is up almost 7% on the year. I sold my own shares in February. Since writing about it, the stock is down 12%.
AMD is not a bad company. Like Nvidia, however, the stock is priced to perfection at over 10 times revenue. It’s unwise to have too many such companies in your portfolio. I just decided that, if you have several such stocks, I should stick with the best of the breed.
That’s never been AMD. I have covered AMD for over 40 years. It has always been fighting for scraps against a larger rival. In the 20th century, this was Intel (NASDAQ:INTC). While it’s catching up to Intel, Nvidia has moved ahead of it with its artificial intelligence chips and software.
Analysts are divided on what to expect Tuesday. Our Louis Navillier sees a screaming buy zone coming. Others expect the recent sell-off to accelerate.
What seems most likely is a short-term fall and a longer-term rise. The AI boom is not ending. What I call the “small” AI market, models built with a company’s own resources, is showing value for customers. It’s the consumer market where costs are rising far ahead of productivity.
Buy Point Ryzen
AMD stock deserves a premium over the general market. Just not an Nvidia-sized premium.
You may be surprised to learn that AMD had lower sales in 2023 than in 2022. Its peak year for earnings remains 2021.
My hope for the company lies when AI excitement moves beyond the cloud.
Road warriors and those who work from home will need “AI PCs.” These will have the power and connectivity to deal with server-based AI systems, as both programmers and users. As a maker of market-leading central processing units and graphics processing units, AMD is poised to gain a big share of these sales.
But the sales won’t be coming in right away. AMD needs solid relationships with OEMs. It’s why CEO Lisa Su will keynote the coming CompuTex show in Taiwan. That show should be the catalyst for the stock turning around.
AMD’s PC market share is growing, and at just the right time. Its reputation for graphics, and Su’s relationships with OEMs, should power a very merry Christmas indeed.
All investors need to do is wait a while.
The Bottom Line
If there’s a big dip to come in AMD’s stock price, it will come after earnings.
Expect bears to fret over insider selling, about a lack of growth, about Nvidia and Intel.
They may also fret about AMD’s China revenues, which remain considerable. AMD offers a slower version of its chip line there. Bears will see that market drying up as tensions between the U.S. and China continue.
I don’t see that happening. Excitement is already building over the next iteration of AMD’s PC chips, called the Ryzen 9000. Su’s Taiwan visit should be as successful as Nvidia CEO Jensen Huang’s (her second cousin) was last year. (Who doesn’t love a homecoming party?)
The CompuTex show runs from June 3-7. That’s when the next generation of investors want to be in.
As of this writing, Dana Blankenhorn had a LONG position in NVDA and INTC. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
