Why AMD Investors Can Sleep Soundly

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AAdvanced microdevices AMD has established itself as a highly watched company in the semiconductor space. The company has been a favored place for investors to park their money over the past few years, offering a host of gains along the way. The five-year chart below shows AMD stock performance.

Image source: Zacks Investment Research

Throughout 2022, AMD stocks have been hit hard. Rising interest rates, supply chain bottlenecks, chip shortages and soaring energy prices are all responsible for the poor performance of stocks.

Zacks Investment Research
Image source: Zacks Investment Research

As we can see, AMD shares lost nearly a third of their value and significantly underperformed the S&P 500. However, AMD isn’t the only semiconductor company going through a tough time – it there have been countless double-digit valuation declines across the semiconductor industry. industry throughout the year.

Below is a chart of the year-to-date performance of SOXX, the iShares Semiconductor ETF.

Zacks Investment Research
Image source: Zacks Investment Research

The adverse price action was brutal for investors. Vendors have been in complete control throughout the year, and at every corner they continue to reload. This caused a massive shift in sentiment in the company’s stock.

However, the hard times cannot last forever and the bears will eventually tire and return to hibernation. Here are two reasons why AMD stocks still deserve to be in your portfolio.

Solid quarterly results and growth rates

Advanced Micro Devices AMD has been on an absolute tear in its quarterly releases, racking up ten consecutive EPS beats.

Over the past four quarters, the company has acquired a notable average earnings surprise of 19%, and in its latest quarter, the company has blown EPS estimates by 25% into double digits.

Looking ahead, current year EPS estimates show AMD earnings growth of 56%. In addition, net income is expected to increase by 33% over the next three to five years.

While the bottom line remained solid, so did the top line. AMD has chained ten consecutive sales beats, and in its latest quarter, AMD beat the $5 billion revenue estimate by 17%.

For FY22, Zacks Consensus’ sales estimate saw the semiconductor giant rake in nearly $26 billion, a massive 57% year-over-year increase from FY21, when AMD reported annual sales of $16.4 billion. Additionally, for FY23, revenue is expected to increase an additional 13%.

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Image source: Zacks Investment Research

Importance of Semiconductor Technology

Semiconductors, often referred to as microchips, have become an integral part of our daily lives. About the size of a small coin, they keep everything we use every day running efficiently. This includes cars, computers, phones, and even freezers. They are everywhere, and that won’t change anytime soon.

Whenever the world was turned upside down at the start of the pandemic, microchip technology allowed us to work, study, and communicate with others while grounded at home during lockdown orders.

This dramatically accelerated the “digital shift” the world was slowly moving towards. Today we live in a whole new world where many rely on semiconductor technology every day to perform their work and school tasks.

More employees and students are now working from home than ever before, and this trend is expected to continue. What will consumers need to work and study effectively? Microchip technology.

Additionally, the video game industry has exploded over the last few years of stay-at-home orders, and the industry is expected to grow at an accelerated rate over the next few years for this reason. This benefits AMD immensely, as it has quickly become a go-to company whenever gamers are looking for their much-needed, niche-specific computer processors.

Taiwan semiconductor

Let’s move on to a peer and another semiconductor company that deserves a place in any portfolio looking for microchip exposure.

Taiwan Semiconductor TSM is the world’s largest dedicated IC foundry. It supplies microchips to many semiconductor giants, including Nvidia NVDA and AMD.

In its last four quarters, TSM has gained a respectable surprise of 4.2% average EPS, and in its last quarter, the company has exceeded EPS estimates by 7%. TSM has seen positive rating revisions in all areas over the past 60 days.

Zacks Investment Research
Image source: Zacks Investment Research

In addition, annual profits for the current year are expected to rise by 43%, and sales estimates increase turnover by 35%.

TSM is a Zacks Rank #3 (Hold).

Taiwan Semiconductor Manufacturing Company Ltd. Price, consensus and EPS surprise

Taiwan Semiconductor Manufacturing Company Ltd.  Price, consensus and EPS surprise

Taiwan Semiconductor Manufacturing Company Ltd. price-consensus-eps-surprise-chart | Quote from Taiwan Semiconductor Manufacturing Company Ltd.

Conclusion

While the market has sent AMD shares on a steep downward trajectory, the focus needs to be on the long-term picture – microchip technology will no doubt be needed for years and years to come. Expected growth rates also look excellent for revenue and net income.

Additionally, the rocky price action sent AMD’s forward earnings multiple back to 24.2X, a fraction of its 2020 high of 107.2X and well below 2021 highs of 67.8X. This is the lowest value we’ve seen since 2018. A once-stretched valuation metric has apparently returned to much more reasonable levels.

AMD is a Zacks Rank #3 (Hold).

Advanced Micro Devices, Inc. Price, Consensus, and EPS Surprise

Advanced Micro Devices, Inc. Price, Consensus, and EPS Surprise

Advanced Micro Devices, Inc. price-consensus-eps-surprise-chart | Advanced Micro Devices, Inc. Quote

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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