AMD stock’s lower valuation reflects the market’s pessimistic views on its growth prospects.

Before beginning their upward trend, shares of Advanced Micro Devices Inc (NASDAQ:AMD) were trading more than 4% down this morning. The analyst at Wells Fargo, Aaron Rakers, lowered his growth predictions for the next three years, citing a decreasing demand in the PC industry that may spill over to the data center business, which is a significant driver of growth for the chipmaker. Rakers based his decision on this possibility.

On Wednesday at 12:56 p.m. Eastern Time, the AMD stock had only decreased by 1.3%, while the S&P 500 index had decreased by less than 1%.

This growing tech firm has had a year-to-date decline of 53% due to investors’ concerns over rising inflation and interest rates. After hearing what Wells Fargo had to say, should investors be concerned about further losses?

AMD Stock Current Situation

During the most recent earnings call for AMD, which took place at the beginning of August, CEO Lisa Su noted that the company’s next-generation 5-nanometer Genoa server central processing unit (CPU) was seeing extremely significant customer demand. But this happened a few months ago, and the demand patterns may have worsened.

The market intelligence company International Data Corporation has projected that personal computer (PC) shipments will fall by 12.8% in the year 2022, with the majority of this loss coming from the consumer and public sector segments. The enterprise sector, which can afford to maintain investing in goods even during recessions, is only predicted to face a reduction in PC shipments of 1.6%, which is not surprising given the nature of the industry.

According to Su, AMD is scheduled to ship the new server CPU by the end of this year, which would position the company’s data center division for “continuous growth and share gains.”

Next, in the most recent quarter, AMD stock recorded a healthy increase of 83% yearly in revenue from data centers. Despite a continuing drop in the number of personal computers sent out during the second quarter, both the client and gaming markets reported increases in revenue of 25% and 32%, respectively.

Since a significant portion of the investment thesis for AMD stock is based on the company’s ability to steal market share from Intel, investors may be underestimating the resilience of AMD’s business.

Most notably, the company trades at a forward price-to-earnings ratio that is just 15.5 times the earnings projection for this year. This is lower than the ratio that is associated with the typical firm.

Before judging whether or not the company is a good buy, however, investors might want to hold out for one more quarter to get an updated forecast from management.