What happened
Market traders were nervous today after the Bureau of Labor Statistics released the latest Consumer Price Index data for September. Inflation came in higher than analysts expected, which ended hopes that the Federal Reserve would stop raising interest rates.
In other news, analysts are still processing how deep the PC market could fall in the near term, especially if higher inflation sends the economy into a recession.
Shares of Advanced Micro Devices (AMD 0.52%) were down big at the market open on Thursday, but the stock quickly recovered and was up 2% as of 11:38 a.m. ET. This could signal the bad news is already priced in after the shares have fallen 60% year to date.
So what
While Wall Street wonders whether higher inflation and interest rates will tip the economy into a recession, the PC market might already be there. Earlier this week, the International Data Corporation reported worldwide PC shipments were down 15% in the third quarter. This follows a decline of 15.3% in the previous quarter.
Late Wednesday, Credit Suisse lowered estimates for Microsoft over the steepest decline in the PC market in two decades. AMD's dependence on this market could spell a rough year ahead. In the second quarter, AMD's gaming and client revenue, including sales of desktop chips, made up 58% of total revenue.
Now what
There are two reasons investors can look at the stock's sell-off as a buying opportunity. First, AMD is gobbling up market share. Even with PC shipments falling, the company grew its client and gaming revenue by 25% and 32%, respectively, year over year in the second quarter. Intel is the semiconductor company investors should worry about.
Second, valuation matters. It's a good sign that the market brushed off bad economic news and sent AMD shares up by midmorning. The stock certainly looks like a bargain, trading at 15.3 times 2022 earnings estimates. As long as AMD is gaining market share, investors could make a nice return off these valuation levels when the dust clears.
