Investors no longer consider Advanced Micro Devices (NASDAQ:AMD) stock a buy at any price. A similar phenomenon has played out with other AI chip stocks. Concerns are rising about valuation and future growth mainly related to interest rates and worries over China.
Yet while all the fear, uncertainty, and doubt about AMD may frustrate existing investors, this may work to your advantage if you’ve been on the fence. Not necessarily at this moment, but pretty soon, a “can’t miss” opportunity to pounce on this stock may take shape.
AMD Stock: From Runaway Rally to Steady Slide
The generative AI trend began having a positive impact on the performance of AMD early last year, but it was during the past fall and winter that “AI mania” really took hold with this name.
It all had to do with Advanced Micro Device’s launch of its first AI chip product, the Instinct MI300 Data Center APU.
While AMD at first forecast $2 billion in AI chip sales in 2024, before raising this forecast to $3.5 billion earlier this year, investors priced in a far greater level of immediate upside from this product launch.
Alongside this, excitement about AMD’s strong lead in AI chips for PCs also helped to sustain the runaway rally for Advanced Micro Devices stock. Alas, sentiment has shifted dramatically. The runaway rally has given way to a steady slide since March.
Like have discussed previously, the reasons for this sentiment shift have been manyfold, including for the reasons discussed above. This may continue in the immediate term. That said, there is a silver lining.
If a bearish shift continues, soon it could reach a point where it becomes overdone. Here’s how.
Another Drop May be Just Around the Corner
On a relative basis, AMD stock is pricier than Nvidia (NASDAQ:NVDA). Advanced Micro Devices trades for 47.6 times forward earnings, while NVDA trades for only 34.3 times forward earnings.
Admittedly, a big reason for this valuation premium has to do with the perception that AMD, earlier in its AI chip journey, will in the coming year or two experience a higher level of growth compared to Nvidia, which as you likely know has already had its big AI liftoff.
However, in the weeks ahead, this valuation gap could narrow, and not in a good way for AMD.
An upcoming event, AMD’s next earnings release on May 1, could really knock shares down to lower prices. In fact, 29 out of 30 sell-side analysts have already walked back their Advanced Micro Devices earnings forecasts.
Based on current sentiment, there’s a good chance investors will jump on any negative aspect of the earnings release as an excuse to sell, rather than jump on any positive aspect as a reason to buy.
That’s not to say AMD will experience a post-earnings drop to the level where it reaches valuation parity with NVDA, but it may come close.
The Verdict: Take Your Time, But Keep an Eye on AMD
For AMD to fall back to a valuation on par with NVDA, the stock will need to drop back near $125 per share. However, even if a post-earnings plunge only entails AMD re-hitting, say, $150 per share, this too could in time prove to be a “can’t miss” entry point.
In a month’s time, besides the market re-setting its expectations after the latest results and guidance, uncertainties about macro factors like the future direction of interest rates could become more clear as well.
With this, the dust could settle on the Advanced Micro Devices sell-off. From there, shares could embark on a slow-yet-steady comeback, rising as MI300 and AI-PC chip sales really begin to take off.
As earnings could double between now and 2026, a post-plunge comeback could be spectacular. Take your time, but keep an eye on Advanced Micro Devices stock.
AMD stock earns a B rating in Portfolio Grader.
On the date of publication, Louis Navellier held NVDA. He did not have (either directly or indirectly) any other positions in the securities mentioned in this article.
The InvestorPlace Research Staff member primarily responsible for this article did not hold (either directly or indirectly) any positions in the securities mentioned in this article.