Semiconductor company Advanced Micro Devices (AMD) is down approximately 13% month-to-date. With investors continuing to rotate out of expensive fast-growing tech stocks, AMD is one of the names that could be vulnerable to further downside should the rotation continue.
For now, I am bearish on the stock, primarily due to valuation and risks of competition, which may still be discounted in the current share price. (See Analysts' Top Stocks on TipRanks)
AMD's Momentum Is Nothing Short of RemarkableAlthough AMD continues firing on all cylinders, with a nice chunk of share taken away from its top rival Intel (INTC) in the PC space, AMD's valuation is tough to get behind. At writing, the stock trades at 11.1 times sales and 42.1 times trailing earnings. That's not at all expensive, given AMD's expected growth for 2021.
With AMD's management upgrading its revenue growth guidance to 65% from 60% for the full year, there's still much optimism already baked into the share price here.
Moving forward, it may be tougher to maintain such levels of growth, given competitive pressures that could weigh across both the CPU and GPU fronts. The real question investors should ask themselves is if AMD can continue flexing its muscles at the expense of the competition.
Supply chains issues have been a major sore spot for the chipmakers, and AMD has not been immune. Still, it has done a respectable job of navigating through industry headwinds. Should AMD continue holding its own, as Intel stumbles on its own set of COVID-induced issues on the manufacturing front, more share-taking could ensue.
Keeping the Pressure on IntelThough Intel has a very ambitious plan to regain its lead in 2025, don't count on AMD to back down without a fight. Indeed, AMD's management sounded as confident as ever with its own promising product roadmap, which should fuel impressive growth for years to come.
At this pace, AMD is likely to continue maintaining its edge over Intel in the red-hot PC space.
However, it is worth noting that the tides could change in as little as two years, leaving little room for error. Intel has a new CEO in Patrick Gelsinger, a man who shouldn't be underestimated. With AMD's brilliant CEO Lisa Su continuing to impress, though, the tides should stay in AMD's favor, even as Intel gets aggressive in an attempt to claw its share back.
Intel Isn't the Only CompetitorEven if AMD can outpace Intel on the PC-based CPU front, Nvidia (NVDA) and Apple (AAPL) could evolve to become more significant threats over the next decade.
On the GPU side, Nvidia looks unmatched. Although AMD is more about CPUs than GPUs, the rise of the metaverse will bring forth an increased need for graphics-processing power. Without a distinct edge in the GPU space, AMD may have to resort to discounting as Nvidia continues to expand its lead.
Furthermore, Apple and its new line of M-series SoCs could cause the broader PC market to cool off over the coming years.
Undoubtedly, gaming and server products are likely to keep most users from switching to Mac. Still, given Apple's ability to adapt, one shouldn't discount the odds that the tech titan moves into the gaming and enterprise space to bolster the Mac's growth prospects.
Indeed, Apple already has the hardware down, with truly magnificent benchmarks on a per-watt basis. It just needs to cater to a broader range of audiences, specifically within the realm of computer games and business solutions.
With Apple Arcade and Apple Business Essentials, the company has a foundation to scale up to become a credible threat to PC growth. For now, AMD investors shouldn't make too much of Apple's innovations on the Mac side.
In due time, though, Apple could play the role of a disruptor as the Mac becomes more capable. Indeed, game-changing hardware, such as the M1 Pro and Max chips, which boast magnificent low-power CPU and GPU performance, can only be a game-changer if it can be used for a broader range of applications like PC.
Wall Street's TakeTurning to Wall Street, Advanced Micro Devices has a Strong Buy consensus rating, based on 14 Buys and nine Holds assigned in the past three months. The average Advanced Micro Devices price target of $141.95 implies 3.3% upside potential.
Analyst price targets range from a low of $113 per share to a high of $180 per share.
The Bottom Line on AMD StockAMD is such an incredible performer that it's hard to be bearish on the stock, especially with its proven management team. Still, the competitive pressures are prominent across all sides.
As the world shifts gears into the metaverse, AMD's transition may be bumpier than the likes of an Apple or an Nvidia. For that reason, I'd much rather wait for a steeper pullback in AMD stock before getting in.
Disclosure: Joey Frenette owned shares of Apple at the time of publication.
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