Shares of Advanced Micro Devices AMD sunk 1.6% on Wednesday, marking the continuation of a potentially alarming trend as investors assess just how much of AMD’s recent success was based on the cryptocurrency boom.
Before Wednesday’s dip, AMD had seen its stock price tumble nearly 15% over the last month. This alone shouldn’t scare many investors as AMD’s decline coincides with a major market-wide selloff that took substantial chunks out of giants such as Amazon AMZN and Facebook FB. With that said, AMD might have a more serious, long-term problem on its hands.
The semiconductor firm became a fan favorite for cryptocurrency miners, who often preferred AMD’s GPUs to its competitors like Nvidia NVDA. Therefore, as cryptocurrencies became hugely popular demand for AMD’s powerful GPUs surged. In the near-term, this caused prices to climb due to a relative shortage of crypto-grade chips.
The insanely quick demand for cryptocurrencies helped lift AMD and other chipmakers. However, the cryptocurrency market’s meteoric rise was nearly matched by its quick descent.
AMD noted in its most recent 10-K SEC filing that reduced crypto-related demand for its GPUs could negatively impact the company. “The cryptocurrency market is unstable and demand could change quickly,” AMD wrote in an SEC filing.
“For example, China and South Korea have recently instituted restrictions on cryptocurrency trading. If we are unable to manage the risks related to a decrease in the demand for cryptocurrency mining, our GPU business could be materially adversely affected.”
As investors can see, AMD’s stock price is down more than 20% over the last year, performing far worse than its industry’s average. However, the company also operates in the PC and gaming industry and had been successful prior to the rise of cryptocurrencies.
In fact, CNBC’s Jim Cramer recently said of AMD that: “Straight down because of bitcoin? Straight down? I don’t buy that. I think under $10 you want to pick up some AMD.” The company’s stock price currently rests at around $9.80 per share.
Furthermore, our Current Zacks Consensus Estimates are calling for AMD’s quarterly revenues to soar by 57.6% to hit $1.55 billion. The company’s adjusted earnings are also projected to skyrocket 300% and reach $0.08 per share, after posting a loss in the year-ago period.
The company is currently a Zacks Rank #3 (Hold) and sports an “A” grade for Growth in our Style Scores system. But it seems like AMD might remain a wait-and-see stock for now. Luckily, investors have a few weeks to get a better feel for AMD before it posts its first quarter financial results.
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