Please ensure Javascript is enabled for purposes of website accessibility

Why AMD Stock Dropped More Than 5% Today

By Rich Smith – Jan 4, 2022 at 1:44PM

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

What went up just came back down.

What happened

After starting off the new year with a healthy 4.4% share price gain Monday, Advanced Micro Devices (AMD -1.37%) took a turn for the worse Tuesday. As of 1:33 p.m. ET, shares of the semiconductor giant were down 5.7% -- more than deleting all of Monday's gains.

It's not immediately clear what turned investors against the stock, but odds are the issue has its roots in the "2022 Product Premiere livestream" presentation that the company began Tuesday morning.  

Green up arrow button and red down arrow button.

Image source: Getty Images.

So what

In this presentation, AMD CEO Dr. Lisa Su announced several "new products that deliver leadership productivity, content creation, and gaming experiences," including:  

  • "New Radeon RX 6500 XT and Radeon RX 6400 desktop graphics cards for incredible 1080p gaming."
  • "Three new AMD Radeon RX 6000S Series GPUs optimized for thin and light gaming laptops."
  • "Five new AMD Radeon RX 6000M Series GPUs for premium gaming laptops."
  • And "20 new AMD Ryzen 6000 Series processors."

Taking stock of the new products, a Reuters article noted that AMD appeared to be "taking aim at business computers" -- and looking to win market share away from Intel (INTC -0.61%). Data analytics company Lynx, however, noted Tuesday in a note covered by that for most of the first half of 2022, at least, AMD's focus appears to be not on commercial notebook computers at all, but on gaming computers -- a market where AMD will go head to head with Nvidia rather than the weaker Intel.  

Additionally, Lynx is concerned that Dr. Su did not mention the "Genoa" 5-nanometer server chips that the company is developing for business customers, noting that it is now possible that they may launch "no earlier than late 2022."  

Now what

How bad would that be for AMD's business, though, even if it is true?

Consider that over the last five years, AMD has grown its annual revenue by more than three times, grown its annual free cash flow from $4 million to nearly $3 billion, and pivoted from an annual net loss of nearly $500 million to a nearly $4 billion annual net profit.

With the stock trading at a price-earnings ratio of 43 and analysts forecasting that the company's earnings will grow at a nearly 40% annualized rate over the next five years, AMD actually looks quite fairly priced to me right now. This attractive valuation outweighs any potential concerns about the timetables for new product launches, which is why I view AMD's Tuesday sell-off as a buying opportunity.

Rich Smith has no position in any of the stocks mentioned. The Motley Fool owns and recommends Advanced Micro Devices, Intel, and Nvidia. The Motley Fool recommends the following options: long January 2023 $57.50 calls on Intel and short January 2023 $57.50 puts on Intel. 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.