After climbing to prices topping $225 per share, Advanced Micro Devices (NASDAQ:AMD) stock has slid in recent weeks, falling to between $175 and $180 per share. Much of this has to do with waning “AI mania,” but a recent geopolitical-related development has played a role as well.
The market’s unease may continue in the short term. This is due to concerns about recent developments and AMD’s AI catalyst being overpriced. Investors could be overreacting to recent news. The company’s AI catalyst and bull case are getting stronger. With this, the AMD pullback may represent an opportunity, rather than a warning sign.
AMD Stock, the AI Chip Sell-Off, and Recent China News
As discussed in our last Advanced Micro Devices article, a big reason behind the AMD sell-off has been concerns about valuation and future growth.
However, in recent days, a new concern has emerged: news of China’s plans to phase out the use of AMD’s chips in government PCs and servers.
This phase out itself may not represent a major blow to the future prospects of AMD stock, but it is the latest example of how tensions between the U.S. and China continue to rise. For instance, just a few weeks prior, AMD was once again stymied by the U.S. Federal Government’s crackdown on AI chip exports to China.
Even as shares have recovered, after initially falling on the phase out news, concerns about further restrictions that could impact sales in what is AMD’s third-largest market may remain elevated.
Yet while AMD’s China risk is difficult to handicap, keep the following in mind.
Advanced Micro Devices’ MI300 and AI-PC chip catalysts far outweigh these China-related concerns. Although the aforementioned valuation and growth concerns may carry on, they won’t last forever. Eventually, sentiment will shift back in a big way.
Roll Out and Ramp Up to Substantially Higher Prices
AMD stock naysayers may believe that a nearly threefold move for shares since early 2023 takes into account the chip designer’s potential upside from the gen AI trend, and then some.
Look at Advanced Micro Devices’ own forecasts for its MI300 GPU accelerator. At first, you may come to the same conclusion. Management has guided for this product to generate $3.5 billion in revenue this year.
Not too shabby, but at the same time not exactly something that should add hundreds of billions to AMD’s market cap.
However, it’s not as if the market has irrational priced-in unattainable future growth.
As Piper Sandler analyst Harsh Kumar has argued, AMD could end up capturing 20-30% of the AI data center GPU market. Largely, because of a pricing advantage over its key competitor that currently dominates this space.
Besides significant runway from the AI GPU rollout, there’s tremendous potential with AMD’s ramp-up of AI-compatible CPUs for the PC market. With these two end-user markets alone, forget about concerns about slowing or underwhelming growth this year and beyond.
The company is well-positioned to exceed expectations. Over time, this could enable shares to sustain, and add to, their AI-related gains.
Feel Free to Pounce on Continued Weakness
Advanced Micro Devices has a powerful shot of hitting the high-end of sell-side earnings forecasts. This holds especially true, with regards to 2025 and 2026.
In fact, two years out, AMD’s earnings could hit levels nearing $10 per share. This would represent quite a surge. AMD’s earnings are expected to come in at $3.65 per share this year.
Even if the valuation of AMD experiences some compression between now and then, a move to $300 per share is likely within reach.
Better yet, it’s not as if you’ll likely need to wait for 2025 or 2026 for a big surge to take shape. In the coming quarters, the company’s results and updates to guidance may provide even more credence to the AI-powered bull case. Shares could resume moving in the right direction.
Hence, feel free to pounce on the continued weakness with AMD stock.
AMD stock earns an B rating in Portfolio Grader.
On the date of publication, 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.
