AMD stock price forecast: it could get ugly soon

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Written on Jun 5, 2024

Reading time 4 minutes

AMD shares have moved into a deep bear market in the past three months.
The company’s growth has largely stalled despite huge AI demand.
Analysts at Citigroup expect that AMD will capture 10% of the AI market.

The Advanced Micro Devices (NASDAQ: AMD) stock price has plunged hard and moved into a bear market in the past few months. It has plunged by almost 30% from its highest level this year even as other semiconductor companies like Nvidia have soared to a record high.

AMD’s share price has retreated sharply in the past few weeks because of its slow revenue growth and the fact that Nvidia has scooped the most market share in the GPU industry. Many large companies like Tesla, Microsoft, and Amazon have announced huge orders for Nvidia chips.

AMD’s revenue growth has been lower than that of the S&P 500 index. It rose by just 2% in the first quarter to $5.47 billion while the S&P 500 grew by over 5% during the quarter. Its revenue also dropped by about 11% from the fourth quarter.

AMD’s profits are also not growing as strong. The company’s net income came in at $123 million, down by 82% from the previous quarter. Its earnings per share of $0.07 was lower than the 41 cents it made in the fourth quarter.

AMD is now hoping to become a formidable competitor to Nvidia. Earlier this week, the company unveiled Zen 5 Ryzen processors that are aimed at powering advanced artificial intelligence appliances. These processors are built on the new AMD XDNA 2 architecture and are ready to power the most advanced AI features.

At the same time, AMD launched the Radeon Pro W7900 graphics card that will compete directly with some of the products made by Nvidia. In a note on Tuesday, analysts at Citigroup noted that the company could get 10% of data center GPU market.

I believe that AMD is one of the best semiconductor companies in the industry. Under Lisa Su, the company has moved from a slow-growing chip company into a leading contender in the sector. It has taken substantial market share in the CPU market from Intel.

However, there are several concerns about its business and stock. First, the revenue growth has slowed and the management expects that the trend will continue. It expects that its revenue will be about $5.7 billion-plus minus $300 million, representing a 6% revenue growth. For the year, analysts expect that its revenue growth will be about 13% followed by 28.2% in 2025.

Second, as I wrote in my previous article, there are signs that the company is a bit overvalued. It is trading at 10.3x estimated sales of 2024, which is a stretch compared to its peers. The sector median stands at 2.9 while Super Micro Computer has a forward price-to-sales multiple of 3. Therefore, the company will need to deliver to justify this valuation.

AMD stock price forecast

AMD chart by TradingView

The daily chart shows that the AMD share price peaked at $227.70 in March and has now crashed by almost 30%. It has moved slightly below the 38.2% Fibonacci Retracement level and the first support of the Andrew’s pitchfork tool.

The stock is oscillating at the 50-day and 100-day moving averages. Most importantly, it has formed what looks like a bearish flag pattern, which is a popular bearish sign. Therefore, while I believe that AMD is a good stock to buy, technicals point to a drop to the 50% retracement point at $141. This price is also important since it coincides with the lower side of the flag pattern.