Advanced Micro Devices (AMD, Financial) shares experienced a significant decline of 7.35%, reaching a price of $88.29, following news that sales of its MI308X processor to China are effectively banned. This has resulted in an anticipated $800 million write-down, contributing to the negative sentiment among investors.
The export of AMD's MI308X artificial intelligence (AI) processor to China will now require an export license due to new U.S. policies. The probability of obtaining this license is low, leading to a projected financial impact on AMD. The company is also facing additional cost pressures from TSMC, its chip manufacturing partner, which has reportedly increased the price of its 4nm chips by 30% due to high demand.
Further exacerbating AMD's challenges are macroeconomic factors such as increased tariffs on Chinese goods, announced by the Trump administration, rising to 245%. These trade tensions, along with comments from Federal Reserve Chairman Jerome Powell about potential economic slowdown and inflation, have also weighed on investor sentiment.
From a valuation perspective, AMD presents a complex picture. The stock's GF Value suggests it may be significantly undervalued. Currently, the GF Value estimate is $133.63, indicating a potential upside for investors. For a more detailed understanding of its valuation, you can refer to AMD's GF Value page.
AMD boasts strong financial health with a high Altman Z-Score of 8.69, indicating low bankruptcy risk, and a robust Piotroski F-Score of 8. Despite these strengths, the company's operating margin has been on a decline over the past five years, with an average annual decrease of 21.3%. Additionally, the company's return on invested capital (ROIC) is currently beneath its weighted average cost of capital (WACC), pointing towards potential inefficiencies in capital utilization.
Despite the headwinds and recent stock decline, it's crucial to note that AMD's insider activities remain positive with recent buying. This insider buying trend could signal confidence in the company's long-term prospects.
