Key Takeaways
- AMD shares dropped more that 8% on Thursday as interest-rate-cautious investors reassess the chipmaker’s outlook and valuation.
- AMD trades at a higher forward earnings multiple than other AI chip stocks, such as Marvell Technology, Intel, Nvidia, and Broadcom.
- Amid further downside, AMD shares may find buying interest near a key horizontal line connecting the June 2023 swing high and the 200-day moving average.
Advanced Micro Devices (AMD) led chip stocks lower Thursday, dropping by more than 8% as uncertainty over interest rate cuts and a reassessment of the chipmaker’s outlook and valuation contributed to a bearish shift in sentiment.
The chipmaker’s stock opened the session lower, with selling gaining momentum after Minneapolis Fed President Neel Kashkari said Thursday afternoon that he had previously expected two interest rate cuts in 2024, but none may be needed this year if inflation remains at elevated levels. On Wednesday, Federal Reserve Chairman Jerome Powell said that the central bank needs more proof of easing inflation before it can cut rates.
Typically chip stocks, such as AMD, have a heavy reliance on cheap borrowing costs to fund their expensive development costs, making them highly sensitive to interest rate movements.
Looking more specifically at AMD, investors may be reassessing the chipmaker’s valuation amid a wave of profit taking to kickstart the second quarter. When reporting earnings in late January, the company missed Wall Street’s current-quarter expectations amid softer PC and CPU chip demand. While AMC said it sees 2024 artificial intelligence (AI) GPU chip sales of $3.5 billion, that forecast came in below some buy-side expectations of $6 billion.
Through Thursday’s close, the chipmaker’s stock trades at 53.5 times forward earnings, with that multiple higher than other AI stocks, such as Marvell Technology (MRVL) at 49.0 times, Intel (INTC) at 32.9 times, Nvidia (NVDA) at 37.2 times, and Broadcom (AVGO) at 28.6 times. In January, Bernstein analyst Stacy Rasgon noted that AMD was “the most expensive of the AI semi stocks by a wide margin,” when it traded at 44.6 times forward earnings.
Although still in a longer-term uptrend with the price trading above the 200-day moving average, AMD shares have turned bearish over the past month, trading down around 27% since topping out in early March. Thursday’s close below the 50-day moving average and a five-month trendline on the highest share turnover in the past week indicates the possibility for further near-term downside.
If the stock continues to track lower, investors should keep an eye on the $133 level, an area on the chart where the price may find buying interest near a key horizontal line connecting the June 2023 swing high and the 200-day moving average.
AMD shares fell 8.3% to finish Thursday’s trading session at $165.83. The stock is still up nearly 80% over the past 12 months.
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