Advanced Micro Devices (NASDAQ: AMD) has featured in numerous headlines over the last couple of years, with its stock plunging 55% throughout 2022 and then skyrocketing almost 50% in 2023. The roller coaster highlights the importance of holding solid growth stocks long-term and through temporary sell-offs.
A spotlight on AMD has created bears and bulls for its stock, with some concerned about the company's position in a burdened personal computer (PC) market and others bullish about its prospects in artificial intelligence (AI), virtual reality (VR), and gaming.
AMD has proven to be a powerful growth stock in the past. Its shares rose 771% in the last five years and over 3,400% in the last decade. However, it's still wise to understand the tech giant's negatives and positives before adding it to your portfolio.
Here are the bear and bull arguments for AMD's stock.
Bear: A battered PC market
In the fourth quarter of 2022, worldwide PC shipments declined 28.5% and 16.2% for the whole year, according to Gartner. Meanwhile, shipments for graphics processing units (GPUs) sank 42% year over year in 2022, with PC component leaders like AMD and Nvidia suffering the worst of the market's declines. GPUs are most popular among gamers who use the chips to power custom-built gaming PCs.
Steep rises in inflation last year led many consumers to cut discretionary spending, with AMD's client segment reporting a 10% year-over-year decrease in revenue of $6.2 billion in fiscal 2022. The company explained in its earnings report the declines were primarily driven by a 24% reduction in product shipments.
On March 16, several tech stocks surged after Susquehanna analyst Christopher Rolland said, "We believe the acute portion of the semiconductor downcycle for the handset, PC, and consumer end markets has passed." AMD shares popped almost 8% in the subsequent 24 hours. If the tech market is headed toward recovery, AMD's related segments could begin to improve in 2023. However, it could take a lot longer for them to return to their pre-2022 form.
Bull: A long list of lucrative partnerships
The best reason to invest in AMD is its response to PC market headwinds, pivoting its business to semi-custom products and industries such as cloud computing and AI.
AMD is a leader in providing semi-custom chips, which has seen it partner with companies such as Sony, Microsoft, Meta Platforms, and a lot more to power a variety of devices. In 2020, AMD became the exclusive provider of the graphics and processing power in Sony's PlayStation 5 and Microsoft's Xbox Series X and S game consoles with its system on a chip. AMD similarly powers the Meta Quest line of VR headsets, along with other headsets from Microsoft and HTC.
Mixed-reality headsets are steadily growing in popularity. The augmented and virtual reality market is projected to reach $31.12 billion this year and expand at a compound annual growth rate (CAGR) of 13.72% through 2027 (per Statista). As the technology reaches mass adoption, AMD could significantly profit over the long term by providing its chips to various headsets.
Moreover, AMD's chips are fueling the cloud and AI markets. The company's hardware powers data centers worldwide that host platforms such as Amazon Web Services and Azure. Meanwhile, its GPUs are capable of developing and running AI software, a market with a CAGR of 37.3% through 2030.
In 2022, AMD's data center segment soared 64% year over year to $6.04 billion, earning the largest portion of revenue. Additionally, its embedded segment, which has the company produce specialized processors for industries such as aerospace and defense, space, and industrial activities, reported revenue growth of 1,750% to $4.55 billion.
AMD was undoubtedly hit hard by PC market declines in 2023, and it may take years for those businesses to recover fully. However, its pivot to custom chips and other less consumer-reliant segments allowed it to continue growing amid an economically challenging year. As a result, AMD likely has a lucrative long-term future, making its stock a screaming buy right now.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. Dani Cook has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, Amazon.com, Meta Platforms, Microsoft, and Nvidia. The Motley Fool recommends Gartner. The Motley Fool has a disclosure policy.
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