Why AMD stock fell 7% today

What happened

Shares of top semiconductor outfit Advanced micro-devices (NASDAQ: AMD) fell 6% today at. 15.40 EST. However, the tough chip designer has still increased by about 33% in the last month.

The catalyst for the divestment appears to be inflation, which is hitting growth stocks of all kinds today. Specifically, data released by the U.S. Department of Labor showed that the consumer price index rose 6.2% year-on-year in October, ahead of 5.9% consensus expectation among economists. Inflation may weaken the value of a company’s long – term viability if it can not keep up with increased costs for production, materials, shipping, etc.

Two people go through paperwork in front of a computer.

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So what

The headline of inflation actually overshadowed some good news for AMD. Just a few days ago, the company revealed that it won a bid Meta platforms(NASDAQ: FB) (formerly known as Facebook) is planning the data center as it begins to build infrastructure necessary for its metaverse business. And today, AMD said it also expanded its relationship with IBM (NYSE: IBM) which will use AMD’s EPYC processor for advanced computer systems.

What now

Given the AMD stock has risen higher since then third quarter results report, it is not surprising that the market chooses a scapegoat (inflation) to book some profits on AMD. Inflation is, of course, a concern if it turns out to be more than just transient, as the economy gradually recovers from the pandemic.

But right now, AMD’s fearless growth (revenue increased 54%, adjusted earnings per share increased 78% in Q3) is practically above the increase in costs. A number of positive news indicate that the company will remain strong for some time as new semiconductor designs is in high demand. For investors holding AMD for the longer term, today’s decline has little significance.

This article represents the opinion of the author, who may disagree with the “official” recommendation position for a Motley Fool premium advisory service. We are motley! Questioning an investment dissertation – even one of our own – helps us all think critically about investing and make decisions that help us become wiser, happier and richer.

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