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Has AMD Stock Dropped Too Far?

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AMD stock (NASDAQ:AMD) has fallen over the last year on expectations that the semiconductor industry is entering an oversupply, mostly due to fears of a worldwide slowdown, after years of shortages.

AMD Stock Dilemma

Aside from the possible surplus that is projected in 2023, AMD is currently seeing price drops for certain of its CPUs. While the price reduction is now concentrated in the secondary market, it is already beginning to influence primary sales as well. AMD isn’t the only semiconductor business experiencing difficulties; NVIDIA (NASDAQ:NVDA) has also seen its shares fall.

AMD has been doing well with the Zen4 architecture and Xilinx chips, and when this is paired with the demand for older processors, AMD stock (NASDAQ:AMD) may be oversold. Some of this is due to slower demand for electronics as compared to prior years. Still, the availability of semiconductors remains a challenge, with demand from vehicles and network-based demand holding supply in check.

Shortages are exacerbated by supply chains.

New supply is scheduled to arrive gradually in 2023 and 2024, potentially alleviating present shortages when facilities open throughout the United States and Asia (Japan). However, challenges such as material shortages caused by supply chain interruptions in China, as well as water constraints, continue to impede supply in the medium term. The Zen 4 chips will be constructed on a 5-nanometer CPU and will be up to 29%-30% quicker than the Zen 3 processors.

AMD Stock Fundamental and Technical Analysis

Looking at the fundamentals, the current future price-to-earnings ratio is at a comparatively low 30x. Meanwhile, analysts predict a future P/E ratio of 17-18x. All things considered, present values are quite low. Semiconductor stocks are notoriously volatile, owing mostly to the news cycle that surrounds them. As a result, the danger of supply chain bottlenecks, as well as the ongoing push and pull between shortage and glut, keep the company trading at lower-than-expected values.

Meanwhile, the put-call ratio remains somewhat negative at.82, and the current RSI is at 35, suggesting that the stock is oversold. Investors and dealers are obviously on the defensive, as dovish monetary policy weighs on morale. To some degree, AMD’s advance was previously fueled by liquidity and speculation, but the present environment does not explain the oversold circumstances, particularly given that the long-term fundamentals remain intact.

AMD faces dangers, the most significant of which is the global economy slowing, resulting in a cyclical slowdown, and over-investment, resulting in a chips glut. However, the stock definitely has a lot of upward potentials. AMD was earlier riding the wave of low discount rates, which has dragged on valuation, but this is insufficient to sustain current price levels.

According to the most recent quarter’s data, the company’s long-term fundamentals remain intact, which might be a good chance for long-term investors to enter the stock.

Featured Image – Megapixl ©  Ralfliebhold

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