Advanced Micro Devices (NASDAQGS:AMD) shares are among the most traded globally right now. The multinational semiconductor company develops computer processors and related technologies from its base in Santa Clara.
So how would I have fared if I invested in Advanced Micro Devices a year ago? And what’s next for the semiconductor giant?
A challenging year
If I’d invested £1,000 in the business last January, today I’d have a little over £550. That’s a pretty terrible return on my investment.
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The stock has slumped 49% over the past year. However, it’s worth noting this part of the market (growth stocks) hasn’t performed well since late 2021.
The only upshot is that the pound is currently around 10% weaker than it was a year go. That means the dollars I’d have bought to buy this US-listed stock a year ago are now worth more in pound terms.
Are things improving?
There are several factors to consider here. Firstly, investors likely have Advanced Micro Devices as part of their portfolio because they see the stock benefitting from technology-related trends. These microchips are a big part of the future.
But near-term performance has clearly been concerning. PCs are a considerable part of its business and the firm has already started feeling the negative repercussions of slowing computer sales.
In highlighting this, the company recently reported third-quarter revenue of $5.57bn — that’s $1bn lower than it previously guided for in the second quarter — and below analysts’ expectations of $5.62bn. However, it’s up 29% year on year.
And in the current macroeconomic environment, investors are worried that growth may slow further as we enter 2023.
Should I buy this stock?
The near-term environment is clearly challenging for many growth stocks. But I don’t see this as a reason to discount Advanced Micro Devices as an option. After all, semiconductors are going to be a huge part of our increasingly digitalised world.
The firm has several advantaged over competitors such as Intel. AMD is a ‘fabless’ semiconductor firm, meaning it doesn’t have its own foundries. This could be seen as a disadvantage, but foundries are expensive to run and require constant investment to continually develop smaller and more advanced chips. So it can also be seen as an advantage.
Instead, the firm only has to design its chips to ensure they’re compatible with a third-party contract chipmaker like Taiwan Semiconductor Manufacturing. There clearly are benefits to this arrangement. The firm’s latest Zen-based processor is the most powerful consumer-grade chip on the market.
Advanced Micro Devices also shares a near-duopoly with Nvidia in the discrete graphic processing unit market — a discrete GPU is one that’s separate from the processor. The chips are also used for the PS5 and Xbox Series S and X. Intel doesn’t provide any similar chips for gaming consoles to date.
So would I buy this stock? Well, while I’m bullish on the long-term prospects of the sector, I’m anticipating more volatility in the near term. As such, I’ll keep a close eye on Advanced Micro Devices, but I’m not buying yet.
