Shares of Advanced Micro Devices (AMD 0.44%) fell 11.4% in March, according to data from S&P Global Market Intelligence. The stock was closing out the month on a break-even trajectory, but a harsh review from analyst firm Barclays triggered a sharp drop on March 31.
Barclays analyst Blayne Curtis dropped his target price for AMD from $148 to $115 per share. At the same time, he reduced his rating on the stock from overweight to equal weight, suggesting that AMD's shares should trade in line with the broader market for a few months.
Curtis said AMD is poised to win market share in several key markets this year, but that the recent surge in PC shipment figures isn't sustainable into 2023. Therefore, the analyst isn't buying the stock until the share price falls far enough or new growth catalysts come to light. A 31% year-to-date price drop so far wasn't enough for this analyst's tastes.
Curtis makes a good deal of sense here. The PC market has been booming recently, but the good times will not roll forever. The remote-work trend might have legs, but it seems like the additional computer hardware going into this phenomenon is already on coffee tables and home-office desks.
The one potential catalyst that could give AMD a fresh push this year or the next would be if the semiconductor industry overcomes the long-running shortage of manufacturing capacity. Then, we could see renewed vitality in the sales of newer and faster video cards for gamers.
There's something strange about Barclays' negative view of AMD, though.
Curiously, the same analyst maintains a bullish overweight rating on AMD rival Nvidia (NVDA 2.95%), with a target price nearly 50% above that stock's current level. In my mind, the two companies face the same business conditions across most of their target markets. Nvidia is trading at 63 times trailing earnings, 81 times free cash flows, and 23 times sales. AMD's metrics look downright affordable in that context, changing hands at 40 times earnings, 53 times free cash flows, and 10 times sales.
I don't see why Nvidia would deserve far higher multiples when the two semiconductor companies are posting similar growth rates in broadly overlapping target markets. I'm staying away from both AMD and Nvidia for now because both stocks look overvalued today.