Please ensure Javascript is enabled for purposes of website accessibility

Why AMD Stock Fell 7% Today

By Nicholas Rossolillo – Nov 10, 2021 at 3:59PM

Key Points

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Rising inflation worries beat out a new chip deal with IBM.

What happened

Shares of top semiconductor outfit Advanced Micro Devices (AMD 0.32%) were down 6% today as of 3:40 p.m. EST. The scrappy chip designer is still up some 33% in the last month, though.  

The catalyst for the sell-off seems to be inflation, which hit growth stocks of all sorts today. Specifically, data released by the U.S. Department of Labor showed the consumer price index surged 6.2% year over year in the month of October, ahead of the 5.9% consensus expectation among economists. Inflation can weaken the value of a company's long-term profitability if it can't keep up with increased costs of production, materials, shipping, etc.

Two people reviewing paperwork in front of a computer.

Image source: Getty Images.

So what

The inflation headline actually overshadowed some good news for AMD. Just a few days ago, the company revealed it won a bid for Meta Platforms(META 3.01%) (formerly known as Facebook) data center plans as it begins to build the infrastructure needed for its metaverse business. And today, AMD said it also expanded on its relationship with IBM (IBM -0.04%) which will be using AMD's EPYC processor for high-end computing systems.

Now what

Given AMD stock has rocketed higher since its third-quarter earnings report, it isn't surprising that the market is choosing a scapegoat (inflation) to book some profits on AMD. Inflation is, of course, a concern if it proves more than just transitory as the economy gradually recovers from the pandemic. 

But as of right now, AMD's intrepid growth (revenue up 54%, adjusted earnings per share up 78% in Q3) is handily outrunning the rise in costs. A string of positive news indicates the business will remain strong for some time as new semiconductor designs are in high demand. For investors holding AMD for the long haul, today's drop is of little consequence.

Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. Nicholas Rossolillo and his clients own shares of Advanced Micro Devices, IBM, and Meta Platforms, Inc. The Motley Fool owns shares of and recommends Advanced Micro Devices and Meta Platforms, Inc. The Motley Fool has a disclosure policy.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.