Advanced Micro Devices (NASDAQ:AMD) hasn’t bounced back from its this year’s tech sell-off. Instead, rather than experience a big surge higher, Advanced Micro Devices stock took yet another big tumble, after its April 30 earnings release.
From here, shares in the chip designer may continue to trend lower. That’s bad news for those looking at AMD as a short-term play, but if you’re a long-term investor, this isn’t as big of a concern as you think.
Why? While investors have a reason for cashing out right now, it’s a shortsighted reason. There may not be much to be excited about with Advanced Micro Devices right now, but a few quarters from now, it may be a different story.
Advanced Micro Devices Stock and its Post-Earnings Poor Performance
Last week, it wasn’t as if AMD delivered horrendous results for the preceding quarter.
Revenue and sales for the quarter ending March 30, 2024 met sell-side expectations. Updates to guidance for the current quarter also in-line with forecasts.
That said, it wasn’t by mistake that investors sold Advanced Micro Devices stock on the earnings news.
While the company’s Data Center segment reported an 80% jump in sales, thanks to the debut of the MI300 AI accelerator chip, AMD’s Gaming unit reported a 48% year-over-year drop in its top line.
The company’s updates to its 2024 MI300 sales forecast really disappointed investors. Even though management made an upward revision to this forecast, from $3.5 billion to $4 billion, this is a far cry from the loftier expectations held by some analysts and investors.
Those most optimistic about Advanced Micro Devices’ move into AI chips have been calling for MI300 sales to hit annual sales of $8 billion.
After the stock’s nearly 9% drop lower immediately after earnings, further declines may lie ahead, as the market dials back its growth expectations.
Yet while that’s the rationale skittish investors are using to exit positions, in time selling AMD could prove regretful.
Why Patience Still Stands to Pay Off
The fact that Advanced Micro Devices stock took another tumble after earnings is not surprising. In fact, we anticipated it, in one of our recent articles on AMD.
Sentiment for this AI chip play has been shifting toward bearishness. Hence, it’s not a shocker that investors focused on the negatives with the earnings release.
Yet while the bearish and cautious have a reason to sell (dialed back expectations), like we put it above, this is a shortsighted rationale for avoiding or selling AMD stock.
The reasons for stronger results in a few quarters are many and varied.
We have previously pointed out several of these reasons, which include AMD’s rollout of chips for the AI-PC market, as well as macro factors like lower interest rates and an improving macro picture.
Alongside these factors, some other positives we’ve yet to mention may emerge. For instance, by 2025, the gaming chip market could start to recover.
These factors, plus continued sales growth for Advanced Micro Devices’ data center AI chips, could mean that the company beats current forecasts for 2025, which already call for revenue growth of 27.75%, and earnings growth of over 57%.
The Verdict: Hang Tight, for Better Times Lie Ahead
In hindsight, it’s clear that the market became too bullish, too early with AMD stock earlier this year. However, following the stock’s double-digit drop since hitting prices north of $225 per share, future potential is no longer so strongly priced into shares.
Better yet, there is big potential for shares to really take off, assuming the various catalysts discussed above play out.
If these play out, signaling that earnings could not just hit sell-side consensus of $5.54 per share, but come in at $6, $7, or even $8 per share, a re-rating to $200 or even $250 per share in a year’s time may be within reach.
With this, if you currently own Advanced Micro Devices stock, you need not head for the hills. Hang tight, for better times lie ahead.
Advanced Micro Devices 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.
