Why Advanced Micro Devices Stock Was Falling This Week
What happened
Week to date, shares of Advanced Micro Devices (NASDAQ: AMD) were down 8.9% as of 10:51 a.m. ET on Friday, according to data provided by S&P Global Market Intelligence.
There was a mixture of positive and negative news this week that affected trading in AMD stock. Toward the end of the week, the U.S. government issued a new licensing requirement to curtail sales of high-performance chips to China.
After a strong rally in July, a new round of earnings results sent the shares downhill again. Year to date, the stock is down 42%.
So what
In 2021, AMD generated $4 billion in sales to customers in China, or a quarter of its total sales. It's not clear how this licensing requirement will affect AMD's annual revenue, but The Wall Street Journal is reporting that AMD doesn't expect a material impact on its business.
The chance to drive more revenue growth from market share gains remains a huge opportunity. Earlier in the week, Wedbush Securities analyst Matt Bryson expressed optimism about AMD's chances to take more market share from Intel with the launch of the Ryzen 7000 series (or "Zen 4" chips) for desktop PCs.
Now what
AMD's new Zen 4 chips will hit retailers on Sept. 27. These new desktop processors deliver a performance boost of up to 40% for certain video games over the previous generation.
Wedbush likes AMD's competitive position with this new lineup. While Intel previously said it planned to raise prices for its chips, AMD is going for higher market share by cutting the price of its new high-end Ryzen 7950X chip by $100 over the previous generation.
Given the declines in PC sales in the first half of the year, management is cautious about the near-term demand in the PC market through the fourth quarter. Still, AMD trades at a conservative valuation of 19 times analyst earnings estimates for 2022, which seems to already price in low sales expectations. The sell-off looks like a good buying opportunity.
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John Ballard has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices and Intel. The Motley Fool recommends the following options: long January 2023 $57.50 calls on Intel and short January 2023 $57.50 puts on Intel. The Motley Fool has a disclosure policy.
