Friday looks like it’s going to be a tough day Intel The company’s shares fell 2% on news that the company would delay the start-up of a new semiconductor plant in Ohio. This is bad news for Intel shareholders.
The good news for investors is that Advanced Micro Devices (NASDAQ:AMD) — because what’s bad news for competitors could be good news for AMD. AMD shares were up 3.2% as of 11:30 a.m. ET.
What Intel says
Until recently, Intel planned to begin production at a new chip factory outside Columbus, Ohio, as early as 2025. wall street journal Reported this morning, weak computer chip demandCoupled with delays in the release of subsidies by the U.S. government under the CHIPS and Science Act of 2022, the timeline has been pushed back to 2026 at the earliest.
On the one hand, this isn’t necessarily terrible news for Intel, as any delays in construction and launch would delay the need for its $20 billion investment (which will eventually add to 100 dollars billion) it must be spent to get the manufacturing complex fully built. But on the other hand, any delay in launch would also delay Intel’s ability to sell more chips.
However, the news is good news for AMD. why?Because one of the reasons Intel is delaying production is the demand for semiconductor chips (in addition to AI) still appears to be quite weak in the highly cyclical semiconductor market.Dumping tons of brand new Intel chips on the market will drive down prices and delay the market’s recovery – so Delay In Intel’s production it should be help AMD prices. British SemiconductorAMD’s announcement that it will similarly delay construction of a $40 billion chip plant in Arizona is doubly good news for AMD.
Is AMD stock a buy?
Now, is this news good news? enough Make AMD stock a buy? Well, don’t get too irrationally excited about this just yet.
AMD is undoubtedly a great company, and AMD stock will certainly benefit from less price competition over the next year or two. However, AMD stock still sells for a respectable price — about 250 times trailing free cash flow, more than 320 times trailing earnings, and about 46.5 times expected earnings even if prices (and profits) start to improve this year.
To be sure, analysts see strong prospects for AMD in the coming years, with free cash flow set to increase roughly fivefold this year (to $5.1 billion) and more than double again (to $12.4 billion) in 2027, with earnings growing faster than 40% per year. If these estimates are correct, AMD stock is selling for about 22 times estimated 2027 free cash flow at current prices. That’s a very good valuation, but it’s still four years away from profitability.
As for today, the best thing I can say about AMD stock is that it’s probably fairly valued at current prices. I would wait for a better than “fair” situation to buy this stock.
Should you invest $1,000 in Advanced Micro Devices right now?
Before buying shares of Advanced Micro Devices, consider the following factors:
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Richie Smith There are no positions for the above stocks. The Motley Fool owns and recommends Advanced Micro Devices and TSMC. The Motley Fool recommends Intel and recommends the following options: long January 2023 $57.50 calls on Intel, long January 2025 $45 calls on Intel, and short February 2024 $47 calls. Motley Fool has disclosure policy.
Why Advanced Micro Devices Stock Is Soaring Today Originally published by The Motley Fool