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Advanced Micro Devices, Inc. (NASDAQ: AMD ) stock has had a lot going for it recently, but mainly on the negative end. AMD’s consumer segment has been affected by increasingly negative sentiments over Q2 shipments as notebook ODMs revised their shipments forecasts.
In addition, investors and analysts have been concerned over negative shipments growth exacerbated by the worsening COVID-19 lockdowns in China. Notably, China’s supply chain visibility has weakened further, given the production suspension and severe logistics bottleneck. Moreover, these challenges have increased more stress on potentially lower end-consumer demand due to higher costs and more abundant chip availability.
As a result, AMD stock revisited its critical $100 support level and broke decisively below it. Nonetheless, we also noticed that short-term and long-term momentum indicators had entered oversold zones. Furthermore, the market has also put aside its recent announcement to acquire Pensando (expected completion Q2’22). The acquisition is expected to further cement AMD’s heterogenous compute strategy, adding a pivotal DPU capability to its line-up. Notably, the announcement followed closely its recent Xilinx completion, with its FPGA, and adaptive SoC capability.
We also share our updated DCF valuation model with an upgraded FV estimate. It accounted for the recent Xilinx acquisition, which is accretive to its top line and profitability.
We discuss why we reiterate our Strong Buy rating on AMD stock. Why Investors Are Getting Wobbly Again
The global economy has been coming under tremendous stress recently. Since the start of the Russia-Ukraine conflict, Fed Chair Jerome Powell highlighted the FOMC’s commitment to a more aggressive rate hike path, coupled with quantitative tightening. Then, a relatively mild COVID-19 lockdown in China’s Shenzhen worsened into a full-blown lockdown in Shanghai.
Given Shanghai’s critical position in China’s manufacturing supply chain, the worsening conditions weren’t welcome. Moreover, Bloomberg also reported on April 11 that the situation has not improved, despite attempts to ease the lockdowns selectively. Bloomberg reported (edited): Shanghai’s struggle with the virus means other local governments may become more sensitive to flare-ups and step up mobility controls even when cases are low, according to Tommy Xie, head of greater China research at Oversea-Chinese Banking Corp. “ The Chinese economy may have to brace for more short-term disruptions in the coming months,” Xie wrote in a report Monday. – Bloomberg If that wasn’t enough, China was also battered by worsening logistics snafus due to local state governments’ closure of critical highways . Notably, the local authorities have been very concerned about “importing” infection into their states. As a result, it has worsened the supply chain situation even further.
Furthermore, notebook ODMs emphasized that they recently had less visibility over the worsening outbreak. However, these ODMs have maintained their optimism until recently. Nevertheless, semiconductor sales remained strong in February. SIA reported that global semiconductor revenue reached $52.5B in February, up 3.4% MoM and 32.4% YoY.
Therefore, the negative sentiments over consumer end-demand only intensified very recently. The notebook ODMs and component suppliers have grown increasingly concerned over extended delays in China. While they were initially less worried, given the supply chain’s resilience, they have since downgraded their forecasts. DIGITIMES reported (edited): Notebook ODMs and component suppliers share the view that their order visibility is rather low for H2’22. The Russia-Ukraine war and pandemic conditions in China will be the two major variables to their shipment performance for the period. In response to the variables, most brand vendors recently have re-estimated their 2022 shipments will stay flat at or slip from 2021 levels , compared to single- or double-digit increases projected in late 2021. It is expected to drive the vendors to slow or scale down order placements with supply chain partners in the months ahead, the sources continued. – DIGITIMES But, AMD Has Bolstered Its Data Center Capability Tremendously
We think AMD’s recent $1.9B acquisition of Pensando has largely gone under the radar due to current negative sentiments. However, AMD investors would be remiss to dismiss the inroads that it has been making to undergird its data center ambitions. With the Xilinx acquisition, AMD now has a “multi-chip” strategy to penetrate Intel’s ( INTC ) stronghold further. In addition, with Pensando, AMD also has a competitive answer to NVIDIA’s ( NVDA ) Bluefield DPUs.
Therefore, we believe AMD is now very well-equipped in its heterogeneous compute roadmap, supporting its highly remarkable EPYC processors. AMD CEO Dr. Lisa Su highlighted (edited): All major cloud and OEM customers have adopted EPYC processors to power their data center offerings. Today, with our acquisition of Pensando, we […]
source AMD: Dropped Below $100 Again – Buy Before It Reverses Up
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