AMD Stock: Bear vs. Bull
Earnings season is here, with countless stocks on the move. The tech industry, in particular, is experiencing a lot of fluctuation as macroeconomic headwinds continue to burden many companies.
Advanced Micro Devices (NASDAQ: AMD) reported its second-quarter earnings on Aug. 2, showing a year-over-year revenue decline of 18% despite beating analyst expectations by $40 million. The quarter was a mixed bag, but analysts remain optimistic about the chipmaker's long-term potential. Its stock is up 2% since the start of August.
The company is making promising headway in artificial intelligence (AI) and will likely benefit from a gradually recovering personal computer (PC) market. As a result, it's not a bad idea to consider investing in AMD before it's too late. However, it's always best to understand the pros and cons of a company before adding it to your portfolio.
So, here is the bear-versus-bull argument for AMD stock.
The bear case: A burdened PC market
The PC market has been one of the hardest-hit in the recent economic downturn. Data from IDC shows worldwide PC shipments fell 29% in the first quarter after at least a year of declines. And chipmakers like AMD suffered as consumer demand dropped.
In the second quarter, the company's client segment reported a revenue decline of 54% as sales of its central processing units (CPUs), graphics processing units (GPUs), and notebook chipsets faltered.
However, CEO Lisa Su expects the company's PC business to gradually recover as its AI offerings ramp up in the second half of the year. Su credited "the strength of our product portfolio and increased adoption of our Ryzen 7000 CPUs" for the optimism. She is particularly bullish about the company's Ryzen 7040 mobile CPUs, which have a dedicated AI engine.
Su added, "Going forward, we see AI as a significant PC demand driver as Microsoft and other large software providers incorporate generative AI into their offerings."
Her comments are in line with how rapidly the AI market is expanding, bringing the potential to boost multiple industries. With AMD active in many areas of tech, its PC business could profit substantially from the sector's development over the long term.
The bull case: Promising progress in AI
AMD started 2023 on the back foot, with its biggest competitor Nvidia getting a head start in AI. Nvidia's dominating market share in GPUs has helped it attain a 90% share in AI chips and led to lucrative partnerships with some of the industry's biggest companies, like ChatGPT's OpenAI.
As a result, AMD has spent the first half of 2023 playing catch-up and putting all of its resources toward developing its AI chips. In June, the company unveiled its most powerful GPU to date, the MI300X. Along with its other products, AMD's AI expansion has caught the eye of tech giants across the industry.
Moreover, many tech companies and Nvidia customers are rooting for AMD to succeed because increased competition should reduce the cost of chips. This thinking has motivated Microsoft to join in AMD's chip expansion.
The Windows company is reportedly supporting AMD's growing venture in the sector with financial and engineering resources. Microsoft's position as the leading investor in OpenAI has granted it exclusive licenses on multiple AI models, which could make its guidance invaluable for AMD.
Recent advances increased demand for chips across the tech sector, making semiconductor stocks like AMD attractive long-term investments. The company might be suffering from the troubled PC market, but its quickly expanding position in AI and its history of producing quality chips make it a worthwhile investment. With its shares up 497% in the last five years, AMD is a no-brainer investment in 2023.
10 stocks we like better than Advanced Micro Devices
When our analyst team has a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*
They just revealed what they believe are the ten best stocks for investors to buy right now... and Advanced Micro Devices wasn't one of them! That's right -- they think these 10 stocks are even better buys.
*Stock Advisor returns as of August 1, 2023
Dani Cook has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, Microsoft, and Nvidia. The Motley Fool has a disclosure policy.
