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Long-term investors should take a look at oversold AMD stocks


Technology sales may have eased, but Advanced micro-systems (NASDAQ:AMD) stocks are still struggling. Down almost 50% since the start of the sell-off last November, AMD stock recently hit a new 52-week low. With all the uncertainty surrounding the economy, this could continue for the foreseeable future.

Still, is that a reason to ditch the chipmaker altogether? Not so fast. Pandemic-era boom times may be in the rearview mirror. The next year or two could be a tougher economic environment. Nonetheless, this company may have the opportunity to continue to generate high levels of revenue and earnings growth.

If that turns out to be the case, stocks could make a big rally in time. Before that happens, it might be time to take a closer look. It is likely that he will not remain in disgrace forever.

Teleprinter Company Price
AMD Advanced Micro Devices, Inc. $80.90

AMD Stock: Why Its Fall May Be An Overreaction

In the case of many growth and tech stocks that have plunged in recent months, the fall was justified. In the case of Advanced Micro Devices, however, this may have been an overreaction.

Although its growth is expected to slow from the growth levels seen in 2020 and 2021, and even if a recession looks increasingly likely, growth is not expected to come to a screeching halt. At least that’s what emerged from the company’s recent Investor Day, held on June 9. At the event, management explained why, despite a likely economic downturn, it could continue to post 20% annual revenue growth.

This is due to its exposure to end markets where strong demand for its CPUs and GPUs could continue recession or no recession. For example, end-user markets, such as artificial intelligence (AI), cloud computing and data centers, could outweigh a possible slowdown in demand among its other major end-user markets, such as PCs and video games.

Granted, we won’t know for sure if he can deliver on that promise of 20% growth, no matter how tough economic conditions get. Yet its current valuation can more than account for that.

Growth potential at a more than reasonable price

At today’s prices, AMD shares are trading at around 18.6 times estimated earnings for 2022. That’s a very low valuation for a company that may have the ability to sustain double-digit growth in coming years. Today’s valuation assumes a much larger level of growth deceleration.

This indicates two things. First, if growth is in line with current expectations, Advanced Micro Devices’ current valuation could be sustainable. The stock price may continue to rise over time, but at a slower and steady pace, consistent with moderate earnings growth.

But if management’s bullish forecast comes true, price appreciation from here could be dramatic. Not only could higher-than-expected earnings result in a much bigger move for AMD, but it could also help justify further expansion in its valuation. Even a simple expansion of its forward multiple to 25x could mean a huge price increase from current prices.

Even better, the three end markets I discussed above aren’t the only potential growth drivers. As I mentioned earlier this month, the rise of the metaverse could also be a major long-term catalyst for the stock. There could be huge benefits if the metaverse reaches critical mass.

The Verdict on AMD Stocks

Currently, AMD stock gets a “B” rating in my portfolio binder. This security could continue to offer average performance in the short term. However, over a longer period, as the uncertainties dissipate and if it continues to generate outsized growth, the results will speak for themselves.

Maintaining a growth of 20% could allow this title to come back in force. This is due to the stock rising in line with earnings, as well as further expansion in its earnings multiple. Add in the growth potential of the metaverse, and the title could have a clear path to reach its all-time high – and even reach new all-time highs – in the years to come.

Already priced as if on course for much lower growth rates, the market’s short-sighted sentiment is working to your advantage. Before the market realizes it has overreacted, you might want to consider buying some AMD stock.

As of the date of publication, Louis Navellier had a long position in AMD. Louis Navellier has held (neither directly nor indirectly) any other position in the securities mentioned in this article. The InvestorPlace research staff member primarily responsible for this article has not held (directly or indirectly) any position in the securities mentioned in this article.

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