Pre-Earning AMD Flushed to 52-Week Low Before Earnings – Would You BUY, HOLD, or SELL?

$Advanced Micro Devices(AMD)$

In recent days, we've seen a significant selloff in tech stocks, especially in the AI sector, which has spilled over into the broader market. Today, the consequences of Donald Trump's tariffs on China, Canada, and Mexico have been felt, with widespread losses across the stock market. One company that continues to struggle is AMD (Advanced Micro Devices), which some have humorously referred to as "Advanced Money Destroyer." Tomorrow is a pivotal day for AMD, as they will report earnings after market close. Analysts expect a 41% year-on-year increase in earnings per share (EPS), with double-digit growth expected for all four quarters this year. Over the past four quarters, AMD has consistently met or exceeded expectations, with a forecasted EPS of $4.95 for December 2025. Based on this, the company is currently trading at a relatively low forward price-to-earnings (P/E) ratio of 23.

However, AMD’s performance over the past year has been lackluster, down 32%. Currently, the company is down over 2%, primarily due to the tariff situation. But looking at the bigger picture, AMD has significantly outperformed the S&P 500 over the last decade, with a growth of more than 3,500%. At its current price, AMD is near its 52-week low, but despite recent struggles, both Wall Street and Seeking Alpha still view it as a "buy."

That said, recent downgrades are noteworthy. Bank of America downgraded AMD over concerns about potential market share losses, citing increased competition, particularly from Nvidia. They currently set a price target of $155, which still shows a solid upside potential. Similarly, HSBC downgraded AMD in January, lowering their price target to $110, down from an earlier estimate of around $200, with concerns about strong competition from Nvidia in the AI space. Wolf Research echoed these concerns, especially regarding AMD’s data center GPU revenue, which fell short of expectations.

More recently, some analysts have suggested that AMD’s AI prospects could be under pressure as big tech companies pivot to custom chips, potentially hurting AMD's revenue. While these analysts are under scrutiny, it’s important to remember that downgrades often snowball, as other analysts follow suit. Analysts may also be trying to drive down the stock price to buy at a lower value, a common tactic in the market.

In summary, despite the challenges and the wave of downgrades, AMD’s future remains uncertain. We’ll have to see how the company performs with its earnings report tomorrow, but it’s clear that competition, especially from Nvidia, is becoming a growing concern for AMD's market position in the AI space.

Tomorrow marks the day before AMD releases its earnings, and investors are eagerly awaiting the results. What can we expect from AMD’s post-market earnings report? The company is projected to hit $7.5 billion in revenue, with a gross margin of 54%. This target seems achievable given AMD's strong performance in recent quarters, particularly driven by its data center segment, which has seen a 122% year-on-year growth. At a recent conference, AMD’s COO, Lisa Su, highlighted that the data center business could grow by 60% annually until 2028, with the market potentially reaching $500 billion. As a result, investors will be closely watching the data center revenue to see if it continues its triple-digit growth.

From a valuation perspective, AMD is trading at a forward P/E ratio of 23, which is lower than both the sector average and its own 5-year average, suggesting the stock is priced at a discount. However, when it comes to growth, AMD earns an A grade, with expected year-on-year growth of 10%, which is above the sector’s average but still lower than its 5-year historical rates. Over the next 12 months, growth is projected at 11%, again higher than the sector but lower than its historical performance. One area where AMD stands out is its EPS, which is expected to grow by 44.4%, surpassing both the sector (15%) and its historical average (33%).

Regarding profitability, AMD earns a B+ grade. Its gross margin of 52% is better than the sector’s (50.5%) and its own past performance (48.2%). Its bottom line shows a 7.52% margin, which is better than the sector's 4%, though still lower than AMD’s own historical average of 11.4%. On a positive note, AMD generates $2.12 billion in cash from operations, significantly higher than the sector’s $92 million, and just slightly below its 5-year average of $2.7 billion. The company’s balance sheet is also strong, with a net debt-to-EBITDA ratio of zero since 2019, meaning it could pay off all its debt with cash on hand within a day.

In their latest earnings, AMD reported an 18% increase in revenue compared to last year, along with improvements in gross margins, which signals efficiency and quality in their operations. This is something investors should look for in the companies they invest in: growing revenue and improving margins.

In terms of institutional ownership, 71% of AMD is held by institutions, amounting to $11 billion in sales over the past year. While more selling than buying was noted in the latest quarter, this is consistent with the trend seen across the tech sector, including Nvidia. Insider ownership is just under 1%, with $68 million in sales over the last year, though no insider buying or selling was noted in Q1, which covers January. In Q4, insiders sold $28 million worth of shares, and the most recent sale was on December 4th, when the CEO sold approximately 77,000 shares, worth just under $1 million. This isn’t necessarily a bearish sign, as insiders sell shares for various reasons, including personal and financial needs.

For AMD’s valuation, we’ve maintained a price target of $189, unchanged from our previous analysis, but we will continue to monitor and reassess following their earnings report.

Here’s how we arrived at the $189 price target for AMD. We started with the company’s free cash flow (FCF) growth, which has fluctuated between negative and positive in the past, as we’ve pointed out in previous episodes. With a 30% growth rate, we calculate a low, medium, and high projection. Keep in mind that these figures are subjective, and you can adjust them as you see fit for AMD or any other company. By applying a discount rate to the future free cash flows and terminal value, we get the present value. Then, we add the cash, subtract the total debt, and divide by the shares outstanding to arrive at the equity value, which gives us the $189 target. This represents a 67% upside.

For those who think that this estimate is too optimistic, with a more conservative 25% growth rate, the price target drops to $142, which still suggests a 25% upside. On the other hand, if you're more bullish and expect 35% growth, the target rises to $250. We’ve also factored in Bloomberg’s 42% market growth forecast, which was reported last year. If you agree with that, then the intrinsic value would be around $365, which implies a 223% upside, or more than a 3X return from the current price.

However, we always apply a Margin of Safety (MOS) of at least 10% to ensure we're accounting for uncertainties. If we apply that and consider the company's performance criteria—wide moat, strong financials, and positive future outlook—the target price becomes $170. This still offers upside potential, with Wall Street analysts generally setting a price target of $170 on average, suggesting a 50% upside.

Now, in terms of risk and other options, if you're uncertain about AMD, you could explore other semiconductor companies like Nvidia, which has also been struggling lately. Alternatively, if you're looking for more security, there are ETFs that cover the semiconductor sector, such as SOXX and SMH, which provide exposure to a broader range of companies in the industry.

When evaluating whether AMD is a strong buy, the pros include its strong growth potential, especially in the data center segment, market share gains in GPUs and CPUs, and competitive product offerings. On the flip side, the cons include stiff competition from Intel and Nvidia, as well as the high volatility within the semiconductor space. AMD is also sensitive to broader economic changes, including slowdowns in consumer spending or a global recession, which could impact consumer electronics.

Disclaimer: I want to make it clear that I am not a financial advisor, and nothing I say is intended to be a recommendation to buy or sell any financial instrument. Additionally, it's important to remember that there are no guarantees or certainties in trading or investing, and you should never invest money that you can't afford to lose.

@Daily_Discussion @TigerPM @TigerObserver @Tiger_comments @TigerClub

# Earnings Season: Which Stock is This Week's Dark Horse?

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