Shares of Advanced Micro Devices (AMD 0.06%) fell 21.8% in a rough April, according to data from S&P Global Market Intelligence. The semiconductor company was hit hard in a bad market for technology stocks, especially those that cater to consumer PCs.
Semiconductors tend to be sensitive to market movements, both to the upside and the downside. In addition, higher-valued growth stocks were hit especially hard last month, as the market became increasingly worried about inflation and higher interest rates. As a high-growth semiconductor stock, AMD found itself on the wrong end of the general market mood.
Yet as Tuesday night's earnings report showed, there's certainly nothing wrong with AMD's operational performance at the business level.
There wasn't too much company-specific news during April, aside from the announcement early in the month that AMD would be purchasing data center platform company Pensando for $1.9 billion. Pensando makes a customized processor and software stack that allows customers to optimize data workloads across multiple types of computing chips and architectures. It should go a long way toward bolstering AMD's data center offerings, which consist of its EPYC processors, graphics chips (GPUs), Xilinx field-programmable gate arrays (FPGAs), and other system-on-chips (SOCs).
Still, the Pensando acquisition was not the reason for AMD's decline last month. More likely, investors took note of high inflation and the need for the Fed to raise interest rates quickly. Again, higher rates mean future earnings are discounted more, which hurts growth stocks. Hiking rates too far could cause a recession, which wouldn't be good for chip stocks, either.
Moreover, in the middle of the month, analysts at Baird downgraded AMD's prominent GPU competitor Nvidia (NVDA 0.95%). That followed a big downgrade from Truist for AMD, Intel (INTC 1.05%), as well as Nvidia. These downgrades came as channel checks from both analysts revealed slowing demand for consumer devices, such as personal computers. Obviously, PCs boomed during the pandemic due to people working from home more, so there could be a bit of a hangover as people go back to the office.
At the end of the month, Intel released an earnings report that beat expectations but disappointed in terms of second-quarter guidance, compounding fears about the PC sector. AMD is currently taking market share from Intel in both personal computing as well as data centers, but the tepid Intel forecast was extrapolated to the whole sector.
As it turns out, the market might have been a bit too pessimistic in April -- on AMD as well as other chip stocks. Tuesday night, AMD delivered impressive first-quarter results that blew away expectations for revenue and earnings per share (EPS). Overall revenue grew 71%, with enterprise, custom, and embedded chips skyrocketing 88%, reflecting the strong growth of the cloud. Even the computing and graphics segment, which is exposed to PCs, grew 33%, as market share gains were able to overcome some softness in the industry. EPS was up 117% to $1.13, beating expectations for $0.91.
On the conference call, CEO Lisa Su addressed the PC market concern, saying, "Although the PC market is experiencing some softness coming off multiple quarters of near-record unit shipments, our focus remains on the premium, gaming, and commercial portions of the market, where we see strong growth opportunities and expect to continue gaining overall client revenue share."
So while the market appeared to sell AMD ahead of potential bad news and recession in April, it looks like the selling might have been overdone, given AMD's strong ongoing results and market share gains.