The AMD stock price has underperformed the market this year. The shares have underperformed the overall Nasdaq 100, S&P 500, and the semiconductor exchange-traded fund (ETF), as shown below. In this article, we will look at some of the reasons why AMD has lagged and what to expect later this year.
AMD vs Nasdaq 100, S&P 500, and PHLX
AMD stock has lagged
There are several reasons why the AMD stock price has lagged the overall market. First, the stock has lagged primarily because of the ongoing rotation from lockdown stocks to reopening stocks. Lockdown stocks refers to companies that did well during the lockdown. This include firms like Zoom Communications, which did well as companies and schools embraced the platform.
Similarly, a company like Microsoft did well as more companies shifted to cloud computing while Shopify did well as more people shopped online.
AMD, on the other hand, did well because of demand of its products rose mostly because of gaming. Also, there was a high demand for laptops as more people embraced working from home. Indeed, according to studies, laptop sales jumped to the highest level since 2014.
Reopening stocks, on the other hand, are companies that underperformed in 2020 but those that are set to do well as the economy reopens. This includes companies like ExxonMobil, Chevron, AMC, and airlines. This performance can also be said to be statistical arbitrage, where investors go underweight companies that outperformed in a year and long those that underperformed.
Second, AMD stock price has lagged because of the rising competition from companies like Intel and the overall rotation from growth companies to value. Also, it has fallen because of valuation concerns. For one, AMD has a market cap of more than $93 billion while its total annual sales are less than $10 billion.
Is AMD a buy or sell?
AMD is a good company that has moved from obscurity to become a leading player in the semiconductor industry. It has grown its market share in CPUs year after year and is the preferred option by gamers and data center operators. At the same time, AMD has superior products, solid management, and a relatively strong balance sheet. Its acquisition of Xilinx will also help it grow its market share and compete with Intel well.
AMD market share vs Intel
Analysts are also optimistic about the AMD stock price while some have reservations about the slowing PC market. Analysts at Raymond James expect the stock will bounce back to $110 while those at Mizuho expect that it will rise to $107. Other analysts bullish on AMD are from Northland Securities, Truist, and JP Morgan.
Is AMD stock a buy right now?
From a fundamental standpoint, AMD shares are a good buy. However, from a technical standpoint, there are some concerns. The daily chart above shows that the AMD share price dropped to $72.7o early this year. This was a notable price since it was along the 38.2% Fibonacci retracement level.
At the same time, the stock has formed a head and shoulders pattern that is usually a bearish signal. The stock downward trend is also being supported by the 50-day and 100-day exponential moving averages.
Therefore, while this is a good company, I believe that the shares will decline further from this point. The best way to invest in it for bulls is by dollar-cost averaging, where you buy the stock in bits. If you have $10,000, you can spend $2,000 every month.