Advanced Micro Devices (NASDAQ:AMD) stock is zooming, but does this mean that the company’s business is booming? Before you answer this question, be sure to check the chipmaker’s financials. Then, closely listen to Advanced Micro Devices CEO’s words of warning. Only then can you make a fully informed decision. When all is said and done, you’ll probably decide not to invest in Advanced Micro Devices right now.
This certainly isn’t to suggest that Advanced Micro Devices is going to fail as a company; we’re giving the shares a “D” rating, not an “F.” Successful trading requires precise timing, though, and the last thing you want to do is make an ill-timed investment in a business with noticeable problems.
Besides, the chief executive herself is trying to warn you about issues that could create persistent problems for Advanced Micro Devices. With this in mind, it’s probably wise for risk-averse folks to stay out of the trade.
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AMD Stock Rises, but Is Still on a Downtrend
As AMD stock rallied from its 52-week low of $54.57 into the $70s recently, some eager traders might be tempted to chase those gains. Chasing isn’t an ideal strategy, however, as Advanced Micro Devices shares are still in a long-term downtrend.
Don’t ignore the fact that the Advanced Micro Devices share price was much higher – near $150, actually – at the beginning of 2022. And, the shares aren’t necessarily a major bargain right now. Advanced Micro Devices’ trailing 12-month price-to-earnings (P/E) ratio was 39.3 as of Oct. 11. That’s not sky-high, but it’s also not a screaming bargain.
While we’re on the topic of earnings, Advanced Micro Devices reported $66 million in third-quarter 2022 net income. That’s down 93% on a year-over-year basis, so again, the current share price doesn’t look like a terrific bargain at the moment.
AMD CEO Offers a Word (or Two) of Caution
It’s also worth noting that, during Q3 of 2022, Advanced Micro Devices’ earnings per share or EPS declined 95% year over year. Furthermore, the chipmaker’s operating income flipped from positive to negative, and its operating expenses more than doubled.
Part of the problem is that Advanced Micro Devices’ microprocessors are frequently used in personal computers or PCs. Hence, since PC sales have been slow, this is dragging on Advanced Micro Devices’ bottom-line performance.
Dan McNamara, the head of Advanced Micro Devices’ business-server unit, acknowledged that the current PC environment is “messy.” McNamara further admitted that “the outlook from customers is weaker than expected” in the PC market, according to the Wall Street Journal.
In a similar vein, Advanced Micro Devices CEO Lisa Su stated that the PC market “weakened significantly” in the third quarter. Su also observed that “macroeconomic conditions drove lower than expected PC demand.”
Moreover, according to the Journal, Su predicted that the PC market “could fall by close to 20% this year.” This suggests a potential downturn in a significant revenue source for Advanced Micro Devices.
What You Can Do Now
From a valuation perspective, AMD stock isn’t a rock-bottom bargain. It’s also not a must-own based on Advanced Micro Devices’ financials. There’s also the PC market problem to consider.
Advanced Micro Devices might be worth your investment capital at some point in the future. Once again, however, we must remember to time our traders correctly. For now, we should note the data and heed the CEO’s warning, and exercise due caution. With that in mind, it’s just not the right time to make a confident, positive recommendation to hold shares of Advanced Micro Devices.
On the date of publication, Louis Navellier had a long position in AMD. Louis Navellier did not have (either directly or indirectly) any other positions in the securities mentioned in this article.
The InvestorPlace Research Staff member primarily responsible for this article did not hold (either directly or indirectly) any positions in the securities mentioned in this article.