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The stock market has swooned recently, but chip designer Advanced Micro Devices (NASDAQ: AMD) really took it on the chin. The S&P 500 (SNPINDEX: ^GSPC) index was reaching record prices in January. As of April 12, it trades 13% below that high point.
AMD, on the other hand, started struggling last summer. The stock has plunged 49% lower since July 10, 2024.
You'd think AMD would be soaring these days. Artificial intelligence (AI) is the hottest ticket in this market, driving the stocks of AI specialists to all-time highs, resulting in a few trillion-dollar market caps. AMD's Instinct processors are among the most cost-effective AI accelerator chips, and the Epyc range of server-grade CPUs is perfect for controlling those beastly number-crunchers. AMD's Epyc and Instinct chips are often found together in some of the world's most powerful supercomputers.
But AMD's market makers had other ideas. Is this AI hardware challenger a great buy at these lower stock prices, or is this stock best watched from the sidelines?
I can't blame AMD's drooping stock chart on poor business reports. The company has posted three earnings reports since the price drop started, beating analysts' average earnings estimates twice and their revenue targets in all three reports.
In all fairness, AMD wasn't the only AI hardware designer that experienced at least a short-term peak last July. The downturn was widespread. Arch rival Nvidia (NASDAQ: NVDA) saw a 22.7% share price drop from July 10 to Aug. 6. Chip-making giant Taiwan Semiconductor Manufacturing (NYSE: TSM) took an 18.7% hit. The sector-tracking PHLX Semiconductor Sector Index dipped 22.6% deeper. But AMD led the race to the bottom with a 29.2% price drop:
This was an early round of investor nerves regarding international chip-shipping between the U.S. and China. With 24% of AMD's sales going to Chinese customers last year, it makes sense that the company took a steep dive in this environment. Still, the downtrend covered the whole semiconductor industry at that point.
AMD's chart diverged from the chip-sector trends in December. Several banks issued bearish reports on the stock, chiefly citing weak contract wins in the booming AI market.
All things considered, AMD's disappointing stock chart over the last year was mostly inspired by rumblings in the AI arena.
AMD's stock currently trades at 15 times forward earnings estimates and 5.9 times training sales. These metrics look cheap next to Nvidia's substantially higher ratios. I could also handpick different valuation multiples that lean in the opposite direction, but these two figures highlight the company's robust combination of healthy top-line growth and widening profit margins.