If You Invested $1,000 in AMD in 2022, This Is How Much You Would Have Today

AMD's (AMD 2.37%) stock closed at a record high of $161.91 on Nov. 29, 2021. At the time, the bulls were impressed by its robust sales of CPUs, GPUs, and embedded chips. But by Oct. 13, 2022, its stock had sunk to a two-year low of $54.57.

The bulls retreated as the post-pandemic slowdown in PC sales curbed its growth and rising interest rates compressed its valuations. But after bottoming out, AMD's stock surged to about $110 today -- which would have doubled a $1,000 investment into over $2,000 in just nine months. Let's see why AMD bounced back so quickly -- and if it still has room to run. 

Image source: AMD.

Why did the bulls fall in love with AMD?

The bulls initially loved AMD for three reasons. First, its transformation into a fabless chipmaker -- which outsourced all of its production to TSMC (TSM 1.26%) instead of using its own first-party foundries -- enabled it to pull ahead of its rival Intel (INTC -9.20%) with smaller and denser CPUs.

At the same time, Intel tripped over its own feet with delays and chip shortages as it tried to upgrade its own foundries to catch up to TSMC. As a result, AMD's share of the PC CPU market nearly doubled from 17.5% to 34.7% between the third quarters of 2016 and 2023, according to PassMark Software, as Intel's share shrank from 82.5% to 63.1%.

Second, AMD's gaming segment grew as it launched new Radeon GPUs to keep pace with Nvidia's (NVDA 6.18%) GeForce GPUs. It also provided the APUs (which combine CPUs and GPUs) for Sony's PS5 and Microsoft's Xbox Series consoles, which arrived in late 2020. The robust growth of the gaming market throughout the pandemic, which was amplified by the purchases of gaming GPUs for mining cryptocurrencies, boosted the segment's revenues.

Lastly, AMD agreed to buy the programmable chipmaker Xilinx in October 2020 and closed the deal last February. That acquisition expanded its embedded chip division, increased its exposure to the data center market, and further widened its moat against Intel, which acquired Xilinx's competitor Altera back in 2015 for similar reasons.

AMD's revenue rose 45% in 2020, 68% in 2021, and 44% to $23.6 billion in 2022. By comparison, Intel's revenue declined from $77.9 billion in 2020 to $63.1 billion in 2022 as its growth cooled off and it divested several businesses.

Why did AMD lose its momentum in 2022?

AMD's annual growth rates look impressive, but its quarterly numbers over the past year reveal the painful impact of the PC market's slowdown on its revenues and margins.

Data source: AMD. YOY = Year over year.

Many consumers upgraded their PCs during the pandemic for online classes, remote work, and high-end gaming, which fueled brisk sales of its CPUs and GPUs. But those purchases slowed to a crawl after the pandemic ended.

Unlike Nvidia, which expanded its AI-oriented data center GPU business to offset its slower sales of PC GPUs, AMD had only established a tiny toehold in the data center market with its EPYC CPUs and Radeon Instinct server accelerators. As a result, many investors tossed AMD into the same sinking basket as Intel and other PC-oriented stocks.

Why did the bulls rush back over the past nine months?

It wasn't surprising for AMD to face a cyclical slowdown, but its valuations had overheated during the buying frenzy in growth stocks in 2021. At its all-time high, AMD was valued at 46 times the adjusted earnings per share (EPS) it would generate in 2022, and that high multiple made it an easy target for the bears as interest rates rose. But at $54.57 last October, AMD only traded at 19 times its estimated 2023 earnings. That valuation seemed low relative to its long-term growth potential, and the bulls rushed back.

AMD still expects its revenue to decline 15% to 24% year over year in Q2 as it fully laps its acquisition of Xilinx and struggles with elevated inventory levels across the market. But during the Q1 conference call, CEO Lisa Su predicted AMD would grow again in the "second half of the year" as the PC market stabilizes, it sells more MI300 accelerator chips for the high-performance computing and AI markets, and more PC makers adopt its next-gen Zen 4 chips.

Analysts still expect AMD's revenue and adjusted EPS to decline 3% and 19%, respectively, this year. But for 2024, they expect its revenue and adjusted EPS to grow 20% and 49%, respectively, as its cyclical downturn finally ends. At $110, AMD still trades at a reasonable 26 times next year's earnings, so it might head even higher through the end of the year if the PC market bottoms out and the macro environment improves.