Advanced Micro Devices (AMD) has experienced a significant downturn in share prices, dropping by 35% from its peak in 2023 and early 2024. This decline was a result of high expectations related to an AI boom similar to NVIDIA (NVDA), which did not materialize as anticipated. However, the situation may not be as dire as it seems, and now could be a prime opportunity to buy the dip.
Unlike NVIDIA, AMD is a diverse semiconductor manufacturer with multiple business segments that are offsetting each other’s performance. While some core businesses are struggling, others are thriving, particularly in the AI sector. As certain markets work through inventory issues and prepare for long-term growth fueled by AI and upgrade cycles, they may soon convert into positive drivers for the company.
For instance, weakness was observed in the Gaming and Embedded segments, with declines of 48% and 46%, respectively. Despite a subdued outlook for gaming, improvements and growth are expected over the next year. The Embedded segment, on the other hand, shows more promising signs, with a projected mid-single-digit compound annual growth rate through the end of the decade.
Regarding financials, AMD’s margins have widened significantly, with a 200 basis point increase in gross margin to 52%. The operating margin remained steady, with operating and net income both showing growth. The company’s adjusted earnings of $0.62 beat the consensus by a small margin, reflecting a positive trend in financial performance.
Looking ahead, AMD’s guidance indicates a sequential revenue increase of 4% in Q2, with a year-over-year gain of 6%. While analysts have slightly adjusted their price targets for AMD stock, the general sentiment remains positive, with most targets predicting a double-digit upside potential. The company is expected to benefit from improving supply chain constraints and its early-stage AI ramp-up.
In summary, AMD stock is at a crucial juncture, with technical indicators suggesting a potential rebound from current levels. While uncertainties persist in the market, investors could consider leveraging the current dip in share prices as a buying opportunity. Analysts recommend keeping an eye on AMD’s performance in the AI sector and supply chain improvements, which could drive the stock price higher in the future.
