Advanced Micro Devices (NASDAQ:AMD) shares have experienced choppy price action this earnings season. At the start of July, AMD stock experienced a sharp upward surge. More recently, however, various factors have again weighed on this AI chip stock’s performance.
If that’s not disheartening enough for existing investors, such wobbly performance may persist in the weeks ahead. It may even persist, following the company’s upcoming quarterly earnings release on July 30.
Yet while all of this may sound like good reasons to sell and head for the hills, that is not necessarily the right course of action, if you already own this stock. Long-term growth potential remains strong for Advanced Micro Devices. It may take some time, but once again, shares could benefit from a resurgence in bullishness for its shares.
However, that doesn’t mean you need to dive and bet the ranch at current prices. Given the current environment, it’s clear that it’s best to take a cautious approach.
AMD Stock: From Comeback Kid to Victim of the “Trump Trade”
Again, earlier this month, Advanced Micro Devices seemed as though it was set to finally get out of its slump, and make an epic return to prior highs. However, AMD has quickly lost its “comeback kid” status. Without getting too political, one can chalk this up to the return of the so-called “Trump trade.”
With former President Donald Trump’s perceived chances of winning the 2024 U.S. Presidential election steadily increasing, investors have reacted accordingly. Stocks perceived to gain from another Trump presidency have rallied, and stocks set to lose from his possible return to the White House have taken a hit.
Sure, it’s not as though the Republican nominee’s agenda is directly bad news for AMD stock. However, his recent statements on U.S. military support for Taiwan have frightened the market somewhat. Not a surprise, given how much “fabless” chip companies like Advanced Micro Devices depend on Taiwanese foundries.
Besides possibly being a victim of the “Trump trade,” fear, uncertainty, and doubt (FUD) about AMD’s upcoming quarterly earnings release may also be driving this pullback. If that’s not bad enough, this pre-earnings slump could be the prelude to additional price declines after earnings.
Before The Next Wave of Gains, Expect Some More Pain
As we previously argued, when AMD stock was still experiencing its short-lived “comeback kid” rally, the company’s future may remain bright, but at present there’s high potential for current results to fall short of expectations. Unlike its key competitor, a first-mover in the generative artificial intelligence (GenAI) chips space, AMD’s GenAI growth catalyst is still in the early stages.
For this quarter, and even for the full year, sales of AI-compatible chips for use in servers and consumer devices like PCs is set to only pick up for AMD in 2025 rather than in 2024. Forecasts still call for AMD’s AI chip sales to total $4 billion this year. That’s certainly not a figure to sneeze at, but following this stock’s run-up during 2023 and 2024, this first wave of growth has already been priced-in.
With this, it may take some time for the market to reset expectations, and for the dust to settle. Advanced Micro Devices could sink before earnings, then sink once again after earnings, as investors look to any negative aspect of the release as a reason to sell. Still, while perhaps a reason not to make a pre-earnings wager, there’s no need to eliminate exposure.
The Verdict: Continue to Err on the Side of Caution
When we say Advanced Micro Devices still has ample long-term growth potential, we aren’t overstating things. Considering the continued rollout of AMD’s MI300 AI accelerators, along with the launch of new AI-PC processors and other cutting edge chip products, AMD may just well beat, not merely meet, revenue and earnings expectations during 2025.
Next year, forecasts call for AMD’s revenue to rise by around 27.5%, from $25.54 billion to $32.56 billion. Earnings could surge by around 58%. Even so, with the stock trading at a valuation on par with its further-ahead competitor, you may want to wait for a valuation discount to emerge, before adding or initiating a position.
Fortunately enough, such a moment may arrive. Barring a dramatic upward revision to 2024 guidance, weakness is likely to continue for shares. The opportunity to scoop up a position at a relatively-bargain price could take shape. Keep erring on the side of caution, but continue to keep an eye on AMD stock.
AMD stock earns a B rating in Portfolio Grader.
On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.
On the date of publication, the responsible editor did not have (either directly or indirectly) and positions in the securities mentioned in this article.
