Chip stocks have been crushed in 2022. A quick look at the Semiconductor iShares exchange traded fundwhich has lost 40% of its value this year, shows the extent of the damage.
Changes in consumer spending patterns are leading to lower demand for chips used in personal computers and electronics, while supply chain disruptions are making it difficult to produce enough of the products that remain in high demand. . With signs of an increase in possible declines in sales, traders are not waiting to see what comes next.
advanced micro devices (AMD -1.22%) has not gotten rid of the rubble. In fact, his shares are down more than 50% this year. But with the semiconductor leader’s share price now halved, could it be time to buy AMD stock?
The Bull Case for AMD Stock
AMD’s market share gains are helping offset weakness in the PC market. Over the past year, AMD grabbed an additional 8.9% of the rival PC central processing unit (CPU) market. Intel (NASDAQ:INTC), raising its overall market share to 31.4%, according to Mercury Research. AMD’s advance was broad-based; it increased its share in the desktop (+3.5%), mobile (+4.8%) and increasingly important server (+4.4%) segments, according to Mercury analysts.
Evidence of this market share expansion can be seen in AMD’s impressive financial results. The chipmaker’s revenue soared 70% year-over-year to $6.6 billion in the second quarter, while its adjusted earnings per share rose 67% to $1.05.
Despite the downturn in the PC market, AMD’s customer segment revenue, which includes sales of processors and chipsets for desktop and notebook PCs, rose 25% to $2.2 billion. Growth in AMD’s data center business was even more impressive, with revenue soaring 83% to $1.5 billion. In addition, AMD’s acquisition of semiconductor company Xilinx in February helped drive strong growth in its embedded segment, which houses its adaptive computing offerings.
Better yet, AMD’s market share gains are likely to continue in the coming quarters. Its popular Ryzen processors offer significant performance and efficiency advantages over currently available Intel chips. AMD is also aggressively pricing its new CPUs, with savings of up to $100 compared to previous models, to make them even more attractive to buyers.
Some risks to be considered by investors
Supply chain constraints could continue to hamper chip production. COVID-related lockdowns in China, a key chip manufacturing hub, are an ongoing concern. However, rising semiconductor inventory levels in the industry suggest that many of these production challenges may be beginning to abate.
Inflation is another concern. Higher food, housing and energy prices are forcing many consumers to cut back on discretionary spending. These cost pressures are likely to lead many people to postpone purchases of PCs and other devices. The drop in technology spending could be even more severe if the economy falls into a prolonged recession. Still, there is mounting evidence that inflation has already peaked, which could allow governments to move from restrictive cost-containment measures to more expansionary and economically friendly policies sooner than many investors might expect.
A convincing appraisal
Following its steep decline, AMD shares are now priced much more attractively than they have been in years. Currently, its shares can be purchased for around 27 ending earnings, a price-to-earnings (P/E) ratio that is near its lowest point in the past five years.
AMD’s assessment is even more convincing when we look to the future. AMD’s forward P/E drops to about 15 based on analyst estimates for 2022 and below 14 based on their projections for 2023. That’s a bargain for a high-quality business that’s forecast to grow profits by 26%. annually for the next semester. decade.
So is AMD stock a buy?
AMD is competing and winning in the massive PC and data center processor industries. Its market share gains should continue to boost its sales and profits, despite short-term macroeconomic challenges.
Additionally, the Xilinx acquisition gives AMD a powerful presence in rapidly expanding areas such as artificial intelligence (AI) and edge computing, providing additional long-term growth drivers. Best of all, investors currently have the opportunity to buy the token leader’s shares at a steep discount from their recent highs.
For all of these reasons, AMD stock looks like a solid buy today.
dark joe has no position in any of the mentioned stocks. The Motley Fool has positions and recommends Advanced Micro Devices and Intel. The Motley Fool recommends the following options: January 2023 Long Calls $57.50 at Intel and January 2023 Short Options $57.50 at Intel. The Motley Fool has a disclosure policy.