Usman Salis
AMD stock takes a tumble amidst uncertainties over interest rates and reevaluation of its valuation, trading down by over 8% on Thursday.
AMD's Rate Uncertainty and Valuation Reassessment
Advanced Micro Devices (AMD), a prominent chipmaker, experienced a substantial decline in its stock price, plunging by more than 8% as concerns regarding interest rate adjustments and a reevaluation of the company's outlook and worth weighed heavily on investor sentiment.
The downward spiral commenced as Minneapolis Fed President Neel Kashkari hinted at a potential deviation from earlier projections, suggesting that no interest rate cuts might be necessary in 2024 if inflation remains elevated. This statement, coupled with Federal Reserve Chairman Jerome Powell's remarks about the necessity for further evidence of inflationary trends before contemplating rate adjustments, fueled apprehension among investors, particularly those in the chip sector.
AMD's Valuation Under Scrutiny
Investors are now scrutinizing AMD's valuation, spurred by a flurry of profit-taking activities at the onset of the second quarter. Despite projecting AI GPU chip sales of $3.5 billion for 2024, AMD fell short of meeting some market expectations, which were pegged at $6 billion. This discrepancy, combined with softer PC and CPU chip demand, as evidenced in the company's late January earnings report, has triggered a reassessment of AMD's worth.
As of Thursday's close, AMD's forward earnings multiple stands at 53.5 times, surpassing other AI stocks like Marvell Technology (MRVL), Intel (INTC), Nvidia (NVDA), and Broadcom (AVGO), which are valued at 49.0 times, 32.9 times, 37.2 times, and 28.6 times respectively. Bernstein analyst Stacy Rasgon previously highlighted AMD's steep valuation, which was notably higher than its peers at 44.6 times forward earnings.
Technical Outlook and Key Levels
Despite maintaining a long-term uptrend with its price above the 200-day moving average, AMD shares have displayed bearish tendencies over the past month, declining by approximately 27% since early March. Thursday's closing below the 50-day moving average, accompanied by a breach of a five-month trendline on significant share turnover, signals the potential for further short-term downside.
In the event of continued downward momentum, investors are advised to monitor the $133 level closely. This area on the chart may witness buying interest, aligning with a crucial horizontal line connecting the June 2023 swing high and the 200-day moving average.
Conclusion
AMD's shares concluded Thursday's trading session at $165.83, registering an 8.3% decline. Despite this setback, the stock maintains an impressive 80% surge over the past 12 months.
Usman Salis
