Throughout 2024, I watched my AMD (NASDAQ: AMD) stock lose almost 50% of its value, slipping from a high of $227 to almost $120 by year-end. Profitability lagged expectations — particularly regarding artificial intelligence (AI) — and macro factors like high interest rates and trade restrictions didn’t help.
Combined with an already high valuation, even small disappointments triggered notable share price declines. Those losses continued until April, but it’s since made a spectacular recovery, climbing 25% in June alone.
I decided to find out what’s driving the recovery — and if it’s sustainable.
A tech-driven market recovery
Investor sentiment across global market’s been improving lately, helped by easing tensions in the Middle East and the Federal Reserve’s increasingly dovish policy outlook. Against this backdrop, the S&P 500 has surged to new highs, largely driven by leading tech and communications stocks.
And AMD hasn’t been left behind. The company’s hoping to ride the wave of exploding demand for graphics processing units (GPUs), with plans to channel sales momentum into higher data centre revenues. Recent forecasts from analysts indicate we could be on the cusp of a massive GPU boom, driven by AI demands, machine learning and hyperscale cloud adoption.
Its new Ryzen 9 9950 X3D and Radeon 9070 series are key growth drivers, while data centres are adopting its fifth-gen EPYC Turin processors and Instinct AI accelerators.
But AMD’s not alone. Nvidia and Broadcom continue to dominate the AI market, posing a real threat to its ambitions. While it recently formed a strategic alliance with HCLTech to help bolster its enterprise AI offerings, execution risk remains high. It will need to capture a meaningful share of the market to justify the training and onboarding costs associated with the partnership.
Financially sound
Looking at the latest numbers, AMD’s financial position looks solid. Its market-cap of £233bn’s supported by a healthy operating cash flow of £3.46bn. It has £57.8bn in equity and minor debt of £4.73bn, translating to a low debt-to-equity ratio of just 0.08.
But the stock’s looking a bit overvalued. The shares trade on a price-to-earnings (P/E) ratio of 105.4, in line with Broadcom but roughly double that of Nvidia. Its price-to-book (P/B) ratio of 4.02’s lower than its key rivals, but it still signals a significant premium to the share price.
Profitability also lags peers, with a net margin of just 8% and return on equity (ROE) of 3.9%. For AMD to command these high multiples sustainably, investors will want to see these figures improve — particularly as it scales data centre and AI-focused revenues.
Final thoughts
Overall, AMD appears to be recovering well and could return to stronger profitability if it manages to secure a sizeable slice of the booming GPU market. But there’s an undercurrent of caution around valuations and the risk of supply chain hiccups if geopolitical tensions flare up again.
For now, given the stretched valuation and relative underperformance on profitability, I’m comfortable holding my shares — but I won’t be adding to my position just yet.
