2024 has been a rollercoaster year for shares of Advanced Micro Devices (NASDAQ: AMD). The stock kicked off with a bang, driven by the optimistic outlook on artificial intelligence (AI) chip sales from CEO Lisa Su and team. However, following a reality check post first-quarter update, AMD shares are now trading around 30% lower from their peak earlier in the year.
With a history of optimism and skepticism surrounding AMD, investors are pondering whether it’s the right time to capitalize on the stock dip.
The Rise and Stall of AI Expectations
Going into 2024, there was a buzz around AI chip sales, with forecasts soaring from $2 billion to $3.5 billion. While significant for AMD, this new market segment didn’t quite steal the show during the first-quarter update, dampening investor excitement.
Despite positive reviews, the lack of a further raise in AI sales projections and underwhelming second-quarter guidance have tempered expectations, especially compared to Nvidia’s data center AI revenue trajectory.
Navigating Margins and Market Realities
Looking beyond the AI chatter, rising profit margins remain a pivotal factor for AMD’s success post the Xilinx acquisition. The chipmaker aims to stabilize profitability as consumer spending rebounds, particularly in segments like client revenue and gaming.
While data center AI chips may not single-handedly offset weaker business segments, AMD shines in profit margin expansion. Operating margins surged to 23% in the first quarter, indicating a positive trajectory compared to the previous year’s 11%.
However, the road to reclaiming peak profitability from 2022 is still long. Yet, at 46 times forward price-to-earnings ratio, there might be a reasonable investment case despite the recent stock downturn.
Considering the nuanced market landscape and AMD’s strategic focus, it may be prudent to hold off on purchasing shares at present.
The Investment Conundrum with AMD
As investors weigh their options, it’s essential to reflect on AMD’s potential as an investment. While recent dips might signal caution, understanding the company’s long-term prospects is crucial in making informed decisions.
Would AMD emulate Nvidia’s meteoric rise if history were to repeat itself? Only time will tell. For now, a thoughtful and patient approach seems ideal in navigating the current market scenario.
Before diving into Advanced Micro Devices’ stock, investors are advised to assess the broader market context and evaluate their investment strategies for sustainable growth.
Historical precedents can serve as valuable lessons, but each investment decision warrants individual scrutiny and analysis.
*Stock Advisor returns as of May 13, 2024.