Query: How would you are feeling in the event you owned AMD inventory (NASDAQ:AMD) and it crashed 60%, and even 80%, within the subsequent few months? Sounds excessive? It’s occurred earlier than – and it may occur once more. AMD has been struggling this yr, down about 18% since January, whereas the S&P 500 has remained virtually flat. The inventory has been weighed down by weaker-than-expected development within the firm’s AI accelerator enterprise , the disclosing of China’s new resource-light DeepSeek AI mannequin, which may scale back demand for GPUs, and in addition resulting from mounting macroeconomic issues within the U.S., following President Donald Trump’s imposition of tariffs. We consider the inventory may fall additional to ranges as little as $40 per share. Right here’s why traders must be involved.
Right here’s the factor: in a downturn, AMD inventory may lose significantly. There may be proof from as lately as 2022 that AMD inventory misplaced over 60% of its worth within the matter of only a few quarters. So, may AMD’s roughly $100 inventory slide to round $40 ranges if a repeat of 2022 had been to occur? Now, after all, particular person shares are extra risky than a portfolio – and on this surroundings, in the event you search upside with much less volatility than a single inventory, take into account the High-Quality portfolio, which has outperformed the S&P 500 and achieved returns better than 91% since inception.
Why Is It Related Now?
Whereas the generative AI wave has resulted in surging demand for GPUs, AMD’s AI accelerator enterprise hasn’t been faring in addition to anticipated. Over This fall, AMD’s knowledge middle income – seen as a proxy for its AI chip gross sales – got here in at $3.9 billion, lacking consensus estimates. Steerage additionally didn’t look too good, with the corporate indicating that knowledge middle gross sales for the present quarter are prone to fall 7% sequentially. There are issues in regards to the broader AI market as effectively, as firms may change into extra aware about prices after years of outsize investments in AI infrastructure. The launch of the DeepSeek AI mannequin, reduces the necessity for computing capability that generative AI fashions have required up to now. DeepSeek’s mannequin is open supply, and it’s doable that many large tech firms may take inspiration from its strategies to chop down prices. If adopted extensively, this might cool off the demand for AI computing energy, probably impacting GPU demand.
President Donald Trump’s commerce struggle may additionally damage firms like AMD. The Trump administration doubled the tariff on items from China from 10% to twenty%, along with current levies. Final month, President Trump additionally instructed the potential for a “25% or greater” tariff on all semiconductor chips imported into america. Now, AMD outsources a bulk of the fabrication of its chips to Taiwan’s TSMC and import tariffs may make its merchandise costlier. AMD had gross margins of about 49% during the last yr, that means that the price of its merchandise – a bulk of that are possible imported – is over 50%. That is effectively forward of rival Nvidia, which reported an adjusted gross margin of roughly 75.5%, indicating that the price of its imported merchandise is probably going lower than 25% of its revenues. Which means tariffs may have a extra pronounced impression on AMD, which would wish to soak up the extra prices (and probably damage margins), or move them on to prospects (and threat dropping volumes).
Trump’s daring strikes on tariffs and immigration have additionally stoked fears that inflation may come again. All of this implies the U.S. financial system may hit a tough spot, and even worse, hit a recession – our analysis here on the macro picture. If you think about greater geopolitical uncertainty resulting from daring strikes from the brand new Trump administration, these are important dangers. In spite of everything, the Ukraine- Russia struggle remains to be ongoing, commerce is unsure. Tariffs drive up import prices and sometimes lead to value hikes, decrease disposable revenue, and weaker shopper spending. This might damage AMD’s bread-and-butter CPU enterprise, as prospects of PCs and laptops may delay purchases, decreasing demand for chips.
How resilient is AMD inventory throughout a downturn?
AMD inventory has fared worse than the benchmark S&P 500 index throughout a few of the current downturns. Frightened in regards to the impression of a market crash on AMD inventory? Our dashboard How Low Can Advanced Micro Devices Stock Go In A Market Crash? has an in depth evaluation of how the inventory carried out throughout and after earlier market crashes.
Inflation Shock (2022)
• AMD inventory fell 62.8% from a excessive of $150.24 on 3 January 2022 to $55.94 on 16 October 2022, vs. a peak-to-trough decline of 25.4% for the S&P 500
• The inventory totally recovered to its pre-Disaster peak by 16 January 2024
• Since then, the inventory has elevated to a excessive of $211.38 on 7 March 2024 and presently trades at round $100
Covid Pandemic (2020)
• AMD inventory fell 34.3% from a excessive of $58.90 on 19 February 2020 to $38.71 on 16 March 2020, vs. a peak-to-trough decline of 33.9% for the S&P 500
• The inventory totally recovered to its pre-Disaster peak by 22 July 2020
International Monetary Disaster (2008)
• AMD inventory fell 87.6% from a excessive of $14.55 on 18 October 2007 to $1.80 on 25 November 2008, vs. a peak-to-trough decline of 56.8% for the S&P 500
• The inventory totally recovered to its pre-Disaster peak by 27 February 2017
However given its extraordinarily excessive valuation, the inventory seems comparatively costly, which helps our conclusion that AMD is a costly inventory to purchase.
Premium Valuation
In abstract, it additionally doesn’t assist that AMD inventory remains to be costly; it trades at virtually 30x trailing earnings. Certain, Superior Micro Gadgets’ Revenues have grown significantly over current years, rising at a median fee of 17.8% during the last 3 years (vs. 9.8% for S&P 500). Nevertheless, this development may fade shortly if the financial system takes a flip for the more serious and if tariffs are imposed on AMD’s merchandise.
Given this development deceleration and the broader financial uncertainties, ask your self the query: do you wish to maintain on to your AMD inventory now, will you panic and promote if it begins dropping to $50, $40, and even decrease ranges? Holding on to a falling inventory isn’t straightforward. Trefis works with Empirical Asset Administration — a Boston space wealth supervisor — whose asset allocation methods yielded constructive returns through the 2008-09 interval when the S&P misplaced greater than 40%. Empirical has included the Trefis HQ Portfolio on this asset allocation framework to supply shoppers higher returns with much less threat versus the benchmark index; much less of a roller-coaster experience, as evident in HQ Portfolio efficiency metrics.
| Returns | Mar 2025 MTD [1] |
2025 YTD [1] |
2017-25 Whole [2] |
| AMD Return | 2% | -16% | 797% |
| S&P 500 Return | -2% | -1% | 161% |
| Trefis Strengthened Worth Portfolio | -3% | -5% | 651% |
[1] Returns as of three/6/2025
[2] Cumulative complete returns for the reason that finish of 2016
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The views and opinions expressed herein are the views and opinions of the writer and don’t essentially mirror these of Nasdaq, Inc.
