2024-05-28 00:06:00 ET
AMD (NASDAQ: AMD) stock price has completely diverged from Nvidia in the past few months. It has already tumbled by over 27% from its highest level this year as Nvidia surged to its all-time high and attained a market cap of over $2.6 trillion.
AMD’s growth has stalled
AMD and Nvidia have moved in different directions in the past few months, with Nvidia demonstrating strong revenue growth. The most recent financial results revealed that its revenue growth was over 240%. Its quarterly revenue of $24 billion was higher than what it made in all four quarters in 2019.
AMD, on the other hand, recorded a 2% revenue growth to over $5.4 billion while its net income jumped by 188% to over $123 million. This performance happened even as its data center revenue soared by 80% to $2.3 billion, helped by AMD Instinct GPU and AMD EPYC CPUs.
AMD’s client revenue rose by 85% while its gaming segment plunged by 48% to over $922 million. Embedded revenue dropped by about 46% to $846 million.
Analysts expect that AMD’s revenue growth will trail Nvidia for a while. The estimate is that AMD’s annual revenue will grow by 12.60% this year to over $25.5 billion followed by 28% to over $32 billion in 2025. In its recent earnings, AMD said that its second-quarter revenue will grow by 6% to over $5.7 billion.
Nvidia, on the other hand, is expected to grow by 95% and 30% to $119 billion and $155 billion, respectively. This explains why investors have given Nvidia a valuation of over $2.6 trillion as they expect its business will continue growing profitably in the next few years.
I believe that AMD’s market valuation has room to grow over the years. But to do that, the company will need to re-energize its revenue and profitability growth by focusing on its CPU and GPU market. In this, its GPUs need to be better alternatives to those offered by Nvidia.
The other challenge for AMD is that it is quite overvalued considering that it is no longer growing as it did in the past. The S&P 500 index had quarterly revenue growth of about 6%, meaning that it is having a faster rate than AMD.
At the same time, the S&P 500 index has a forward PE ratio of 20 while AMD has a forward multiple of over 100. This means that AMD is severely overvalued even though it has moved into a deep bear market.
AMD stock price forecast
Turning to the weekly chart, we see that the AMD share price formed a doji pattern in March, leading to a strong reversal. It has now crashed below the crucial support level at $164.53, its highest swing in November 2021.
The stock has now retested this level, which was the upper side of the cup and handle pattern. Most notably, the stock has constantly remained above the 50-week and 200-week Exponential Moving Averages (EMA).
Therefore, technically, the stock will likely continue rising as buyers attempt to retest the year-to-date high of $227.50, about 37% higher than the current level.
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