After rallying strongly last year, semiconductor stocks have taken a savage beating in the past month, on concerns that chip demand will collapse as the global economy slips into a recession.
The Philadelphia Semiconductor Index, which includes some of the world’s largest chipmakers, has shed more than 20% since Feb. 19 even after taking into account yesterday's 11% gain in a broad-based rally.
While analysts and economists are still struggling to understand the extent of the damage to high-growth companies from the fast-spreading deadly virus outbreak, some chipmakers are ready to rebound once the coronavirus pandemic is contained. Advanced Micro Devices (NASDAQ:AMD) is at the top of that list.
Before tumbling into this bear market, the Santa Clara, California-based company had been seeing powerful momentum as it benefited from persistently strong demand for personal computers, data centres and gaming consoles. AMD is the second-largest maker of chips used in computer graphics cards.
To get its growth cycle going, AMD also released a large array of new products last year, targeting its biggest rival Intel (NASDAQ:INTC), which is struggling to roll out its latest and most advanced chips.
In a series of new product releases, the chipmaker showed it was in prime position to snatch the competitive edge from Intel and had the clout to win the biggest customers in the cloud computing market — companies that previously had little option but to rely on Intel’s expensive products.
Post-Crisis Stock to Own
For some analysts, AMD is still well-positioned to perform once the economy is back in motion. Northland Capital Markets upgraded AMD stock last week to ‘outperform,’ saying it was a “company to own post-crisis.”
“A shift in consumer behavior may benefit game console sales in the second-half and we note solid demand in the data center market,” the note said, assigning a $52.50 price target to AMD stock, which surged 11% yesterday to close at $46.22. The chipmaker was the best performer on the S&P 500 Index in 2019.
The stock was also upgraded to “overweight” from “neutral” by an analyst at Piper Sandler who noted the broader market’s recent pullback “provides an attractive opportunity for long-term investors” who want to buy into the stock.
Speaking at an investor conference early this month, Chief Executive Officer Lisa Su tried to allay investors’ concerns about the coronavirus impact on the company’s profitability, saying the computer industry’s supply chain is rapidly recovering to typical levels of activity. AMD’s suppliers in China, Taiwan and Malaysia are almost back to full output.
AMD maintained its near-term revenue forecast of $1.8 billion, plus or minus $50 million, for the first three months of its fiscal year. While results may be at the lower end of that range and business from consumers in China has weakened, orders elsewhere are in line with expectations, helped by demand for data center chips, according to Su.
Other technology companies have scrapped guidance or lowered forecasts for the first quarter ending on April 30, as the coronavirus pandemic hurt demand and endangered global investments on technology.
Bottom Line
After the recent pullback, AMD stock looks to be a good bargain for long-term investors as the chipmaker steadily expands and grabs a larger share of the market for itself.