The past five years have been fruitful for Advanced Micro Devices (NASDAQ: AMD) investors, as an investment of $1,000 made in the stock half a decade ago is now worth almost $2,200 as of this writing.
However, to put things in perspective, the 118% jump in AMD’s shares in the last five years is lower than the 178% jump clocked by the PHLX Semiconductor Sector index over the same period. The past year has been especially difficult for AMD investors, as the stock has shed 41% of its value during this period. This big drop can be attributed to AMD’s inability to capitalize on the booming demand for artificial intelligence (AI) chips, a market where arch-rival Nvidia has established a dominant position.
But then, AMD’s recent results have been solid, and the company has more than one catalyst that could help revive its stock market fortunes over the next five years. We are going to take a closer look at AMD’s potential growth drivers and check why it may be a good idea to buy and hold this stock for the next five years.
AMD’s financial performance over the past five years has been mixed. While the company’s revenue and earnings increased in 2020, 2021, and 2022 on account of strong sales of its central processing units (CPUs) and graphics cards used in personal computers (PCs), its bottom line growth fizzled after a strong start.
That’s because the demand for PCs waned following strong sales in the years of the novel coronavirus pandemic. AMD was left with excess inventory on its hands, and it had to write it down, leading to a sharp decline in the company’s earnings. Meanwhile, the company’s data center business was in fine shape throughout this period as it continued gaining server CPU share from Intel.
But then, sales of gaming consoles from Sony and Microsoft, which are powered by AMD’s semi-custom processors, started maturing and led those tech giants to place fewer orders. Throw in the fact that AMD is way behind Nvidia in the market for gaming graphics cards, with a share of just 10%; it is easy to see why the company’s gaming business has been struggling for traction.
So, the mixed performance of AMD’s various businesses has weighed on the stock’s performance over the past five years. However, the good news is that all the segments discussed above are likely to enjoy solid growth over the next five years, paving the way for more upside in AMD stock.
AMD’s performance over the next five years will depend on the health of key segments such as gaming, data centers, and PCs. The good part is that all these business segments are likely to enjoy secular growth thanks to varied catalysts.