AMD Stock: Bear vs. Bull
Like many tech stocks in 2023, Advanced Micro Devices (NASDAQ: AMD) shares have been rising since Jan. 1. The semiconductor company's stock was up about 21% since the start of the year after better-than-expected quarterly results and AMD's potential in the future of artificial intelligence.
The last 12 months have been a roller-coaster ride for AMD investors as market declines led tech stocks to fall out of favor in 2022, dragging the company's shares down 55% throughout the year. However, AMD proved its resilience by pivoting to more lucrative parts of its business.
As a result, there are bears and bulls when it comes to investing in AMD's stock. So, let's examine both arguments and decide whether the company is worth an investment this year.
Bear: PC market declines
In 2022, macroeconomic headwinds led to steep declines in the personal computer market, with the industry's biggest players, such as AMD, Nvidia, and Intel, suffering stock declines between 48% to 55% over the year. In fact, according to Gartner, worldwide PC shipments tumbled 28.5% in the fourth quarter of 2022 and 16.2% for the year. Meanwhile, consumer spending on PC components fell harder, with worldwide shipments for graphics processing units (GPUs) falling 42% throughout 2022.
AMD felt the market declines hardest in its client segment, primarily made up of consumer processors and GPUs. Revenue in the segment fell 50% in 2022, with operating losses totaling $152 million. AMD's gaming segment also suffered as revenue slipped 6% year over year to $1.6 billion, and operating income fell 34% to $266 million. The segment was burdened by reduced sales from PC gamers who scaled back on GPU and processor (CPU) upgrades.
With PC components still a massive part of AMD's business and the market not yet showing signs of improving, bears are concerned additional economic declines will only lengthen the time it takes for the company's stock to recover fully. However, its 8% market share in consumer GPUs compared to Nvidia's 88% means AMD has less to lose in the space than its biggest competitor.
Bull: AMD's strength is its diversity
Despite the PC market slump, AMD proved its resiliency over the last year by pivoting to parts of its business less affected by the economic downturn. While its client and gaming segments took hits, its data center and embedded businesses flourished, proving the strength of diversification.
In 2022, AMD's data center segment brought in the most revenue, hitting $1.65 billion and rising 42% year over year. The growth is primarily owed to the booming cloud market, worth $368.97 billion in 2021 and projected to grow at a compound annual rate of 14.1% through 2030, according to Grand View Research.
Additionally, AMD recently made promising strides in data centers with the launch of its Genoa series server chips in November 2022. The new chips were released ahead of competing hardware from Intel, which launched its Sapphire Rapids data center chips in January 2023 after two years of delays. Meanwhile, benchmarks have proved AMD's chips are outperforming Intel's, creating more anticipation for its more powerful Genoa-X server chips launching later this year.
Moreover, AMD's embedded segment has skyrocketed over the last year thanks to its acquisition of Xilinx in 2022, a company specializing in developing programmable CPUs used in products for artificial intelligence, aerospace and defense, industrial, and space. AMD's embedded segment saw revenue soar more than 1,800% in 2022 to $1.39 billion, boosting the company's long-term outlook.
AMD's gaming business also benefited from the company's priority of diversification, as its position in game consoles was able to offset reduced sales from PC gamers. AMD exclusively supplies the graphics and processing power through its system on a chip to Sony's PlayStation 5 and Microsoft's Xbox Series X|S, with the success of these consoles retaining profitability in the segment.
AMD suffered a challenging year in 2022 amid substantial declines in the PC market. However, economic declines won't last forever, and the company's success in other markets has proved it can pivot when necessary. As a result, the bulls win this one, making AMD's stock a screaming buy this year.
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Dani Cook has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, Intel, Microsoft, and Nvidia. The Motley Fool recommends Gartner and recommends the following options: long January 2023 $57.50 calls on Intel, long January 2025 $45 calls on Intel, and short January 2025 $45 puts on Intel. The Motley Fool has a disclosure policy.
