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Investing  | January 27, 2022

Advanced Micro Devices (NASDAQ:AMD) shares are not off to the kind of start that would suggest a repeat of 2020, or 2021. For example, AMD stock delivered a 150% return in 2019. (That was the year it was the top performer among the S&P 500).

So far in 2022, AMD shares are off 24%. Not looking good. To be fair, tech stocks in general are down this year as the market frets about issues like inflation, interest rates and a Covid-19 pandemic that refuses to fade away. AMD shares are currently trading for $112.65, down about 30% from their November 2021 all-time high close.

At a time when tech stocks in general are experiencing a pullback, is the current value of AMD stock a buying opportunity? Or would it be better to sit it out for a while to see how this situation is going to develop?

The company is due to report Q4 and full-year 2021 earnings after the bell on Feb. 1. That could be the catalyst that kicks off a recovery. In the meantime, here are some key factors to be watching.

AMD Stock and the Growing PC Market

AMD’s largest division continues to be Computing and Graphics. In Q3 2021, it generated revenue of $2.4 billion, accounting for 55.6% of the company’s total revenue.

The PC market had been in slow decline for the better part of a decade until the pandemic hit. Working form home, remote learning, PC gaming and online shopping resulted in a surge of PC sales. Strong growth in that sector continued in 2021. Total PC shipments for 2021 were up 14.8% from 2020, hitting their highest level since 2012. In its report on the PC market, IDC noted “we continue to believe the overall PC market has reset at a much higher level than before the pandemic.”

This spells continued growth. People who had abandoned PCs in favor of smartphones are now buying computers again.

Many of those people will upgrade to better versions. In addition, as people move back to the office after two years of hybrid and remote work, businesses are expected to spend more on replacing computers. In short, the pandemic gave the entire PC market a shot in the arm, kicking it back into growth mode for the foreseeable future. With a majority of its business coming from that PC market, AMD stock will have a tailwind.

AMD’s Ryzen 6000 Series Mobile Chips Look Solid

A quick word on AMD’s Ryzen 6000 series laptop chips. They were an award-winner at CES 2022, but failed to help AMD stock. The competition is becoming much more intense in 2022, but don’t think that AMD has suddenly lost its edge.

Apple (NASDAQ:AAPL) kicked off a generation of hybrid processors, but when it comes to Windows laptops, AMD’s Ryzen 6000 is offering a combination of performance and battery life that is tough to top.

AMD’s multi-year gains in Windows PC processor market share may slow, but don’t expect it to run out of steam altogether. A growing share of a growing market is a good place to be in.

While PC processors and GPUs are AMD’s biggest line of business, its Enterprise, Embedded and Semi-Custom division reported $1.9 billion in revenue for Q3. Earlier in 2021, it was reported that the custom silicon AMD designed for the Xbox Series X/S and PlayStation 5 accounted for the “vast majority” of that division’s revenue.

As of November 2021, the PS5 and Xbox Series X had sold a combined total of over 25 million units since launch. Demand is still through the roof, with both consoles almost always sold out at retailers. Look for the PS5 and Xbox Series X to be a strong positive for AMD stock for at least the next several years.

AMD Gets Into Mobile Gaming With Valve’s Steam Deck

One area where AMD has lagged GPU and custom processor rival Nvidia (NASDAQ:NVDA) is in mobile gaming. Nvidia makes the Tegra chip that powers the best-selling Switch portable game console.

However, in February 2022, Valve will launch the Steam Deck. This all-new portable game console allows gamers to play their favorite PC titles on the go. The processor that powers the Steam Deck is a custom AMD chip. If the hype surrounding the Steam Deck translates into the expected sales, look for AMD stock to show the results of more revenue pumping into that Enterprise, Embedded and Semi-Custom division.

Bottom Line on AMD Stock

It’s tough to make a call on AMD stock at this point. AMD earns a respectable “B” rating in Portfolio Grader and the company is in a good position. I see continued long-term growth for AMD shares, but the challenge is in figuring out when the current pullback is going to end. Remember, some of this is sector-wide and based on external factors as opposed to AMD’s performance. Then there’s February’s earnings report. The news may well be the catalyst that sees AMD stock stage a turnaround — but any negatives that show up could have the opposite effect.

All I can say is that the current dip offers the opportunity to buy AMD stock at a significant discount compared to its 2021 high. Even if shares have further to drop, if you stick it out, you are very likely to be well rewarded in the long term.

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