Could COVID-19 Drag AMD Stock To $30?

by Trefis Team
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Due to the spread of the novel Coronavirus that has rattled the stock markets and the broader economy, at the current price of $54 per share, we believe AMD stock (NASDAQ: AMD) could see significant downside if there are no signs of abatement of the crisis by June 2020. The key is that AMD’s stock is up around 18% this year, and a large 427% since the start of 2018. We further estimate that AMD’s stock price could decline to levels of around $30 (worst-case scenario) if AMD revenue falls by 20% vs. FY’19, and its valuation multiple drops to around 6x, which would still be double that of its 2018 level of around 3x. Below, we summarize this possible downside case for AMD, which is detailed in our interactive dashboard analysis Advanced Micro Devices Downside: How Low Can Advanced Micro Devices Stock Go?

So what’s the likely trigger and timing to this downside?

  • The global spread of coronavirus has led to slowdown in industrial and economic activity, thus affecting consumer spending power. Lower consumption will lead to lower demand for laptops, computers, and gaming consoles, leading to lower demand for graphics processors. This would lead to a drop in demand for AMD’s products. We believe AMD’s Q2 ’20 results in July will confirm the hit to its revenue.
  • Specifically, we believe the full-year revenue expectations formed by the market may be closer to $5.4 billion, about 20% lower than its 2019 revenue of $6.7 billion, and nearly 17% lower than the 2018 revenue of $6.5 billion.
  • AMD’s P/S multiple, which currently stands at a multi-year high of around 9x, could likely drop to 6x, which would still be more than double that of the 2018 level of 2.8x.
  • This, in turn, would translate into a stock price drop of over 40%, close to $30.

Will such a drop be justified? Absolutely not. However, investors who are first out the door in a panic selling situation take a smaller hit to their portfolio.

The actual recovery and its timing hinge on the broader containment of the coronavirus spread. Our dashboard forecasting US COVID-19 cases with cross-country comparisons analyzes expected recovery time-frames and possible spread of the virus.

We do believe these trends are likely to reverse in later quarters of 2020, and as the Coronavirus crisis is tamed during late Q2, higher revenue and earnings expectations will replace the dire scenarios that are easily imagined during difficult times.

Further, our dashboard -28% Coronavirus crash vs. 4 Historic crashes builds a complete macro picture. It complements our analyses of the coronavirus outbreak’s impact on a diverse set of companies. The complete set of coronavirus impact and timing analyses is available here.

You can see how COVID-19 could affect AMD’s processing units peer Intel, in our dashboard Intel Downside: How Low Can Intel Stock Go?

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