Advanced Micro Devices $AMD(AMD)$ has crashed to new 52-week lows despite a great Analyst Day only a few weeks back. CEO Lisa Su continues to confirm the business isn't impacted by the low-endPC market where competitor Intel $Intel(INTC)$ continues to run into demand issues. Myinvestment thesisremains ultra-Bullish on any stock collapsing while maintaining strong prospects for long-term growth far in excess of where the price currently trades.
Intel Problems
Semiconductor companies from AMD to Qualcomm $Qualcomm(QCOM)$ to NXP Semi. $NXP Semiconductors NV(NXPI)$ have made the case for strong demand and nearly insatiable demand in the data center, premium PC and automotive sector, yet the stocks are hitting new lows due to weak low-end PC and smartphone demand. Oddly, Intel is the company continuously discussing weakness and apparently slashing chip prices, yet the stock is holding up better.
Semiconductor media sitesare reporting that Intel cut Alder Lake chip prices by up to 10% due to weakness in gaming CPUs. The original DigiTimes report suggests the potential for another mid-single-digit price cut in Q3 as well.
Previously, Intel had issued a memo to employees regarding ahiring freezein the client computing group for at least two weeks. At the same time, Intel CFO David Zinsner discussedweak chip demandat the Bank of America Conference.
In addition, the company has announced the potential pause on building new fabs in Ohio due to thelack of government fundswith the CHIPS Act still paused in Congress. CEO Pat Rogers discussed the fabs costing $10 billion each, but the act will cap subsidies at $3 billion per fab which requires Intel to still fund the majority of the costs. The company can't build up the foundry business without building these new fabs to increase supply.
All of this brings us back to the point that AMD isn't facing any of these issues. The chip company doesn't need to pause hiring due to weak demand or wait on government funding to launch a new business unit.
AMD had seen desktop market share struggle in comparison to Intel since a peak back in mid-2020. AMD only has 18.3% of the marketnow, down from 20.1% back in Q3'20.
As chip demand surged due to Covid, AMD wasn't able to keep up with PC demand as the company shifted a bigger focus to Server chips where premium chips sell at higher ASPs. Hence, Intel captured more of the lower-end chip demand where AMD wasn't focused, leaving Intel as the company set to lose out as demand dries up in the consumer PC space.
Priced For Disaster
AMD has fallen to new 52-week lows despite all indications the semi. company faces limited impacts from the ongoing slowdown at the low end in the consumer electronics sector. The stock surged to over $100 on the bullishAnalyst Day presentationson June 9, but AMD has now incredibly fallen into the $70s on a bunch of negative headlines in the sector, all generally related to problems at the chip giant.
As discussed in the previous research, AMD remains on target for a 2023 EPS topping $5. Analysts are still targeting a nearly $5 EPS for next year.
Over the last couple of years, analysts have consistently underestimated the earnings power of AMD. The chip company has a much more logical 2023 EPS target of nearly $5.75 per share based on the forecast provided at the Analyst Day.
If one discounts the EPS targets by 20% due to recession fears knocking down chip demand, AMD would still generate a 2023 EPS of $4.60. At $78, the stock only trades at 17x this discounted earnings target. AMD is clearly priced for an economic outlook that appears highly unlikely, even in a recession.
The below chart doesn't look ideal with the stock crashing through recent lows. AMD might not turn around soon, but the stock is definitely now cheap based on even massive earnings cuts.
Takeaway
The key investor takeaway is that AMD has been unduly punished for feared sector weakness. The chip company has already outlined a path to substantial long-term growth, yet the stock market is extrapolating too much on recent sector weakness in areas unlikely to impact AMD anywhere near the level of Intel.
Investors should use the ongoing weakness to load up on AMD, though the recent stock weakness could prescribe further downside in the stock in the near term.
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