Is Advanced Micro Devices Stock a Buy as Shares Plunge Below $80?

Globe and Mail

09-04-2025

Shares of Advanced Micro Devices (AMD) have taken a hit and dipped below $80 this week, shedding nearly 20% over the past five sessions as market sentiment soured on escalating trade tensions. With AMD's considerable exposure to Chinese markets and reliance on third-party manufacturing, mainly through Taiwan Semiconductor (TSM), the market remains concerned about the potential impact of tariffs on the company.
Tariffs Threaten Semiconductor Supply Chains
At the center of this decline is a policy shift from President Donald Trump's administration. Last week, Trump introduced reciprocal tariffs, targeting a long list of U.S. trading partners. While semiconductors are exempted, the relief may only be temporary.
Adding to the pressure, tariffs were levied on wafer fabrication equipment imported into the U.S. While AMD relies on Taiwan Semiconductor for manufacturing, the ripple effect of these tariffs could still impact its bottom line.
AMD is at a disadvantage compared to its larger rival, Nvidia (NVDA). Unlike Nvidia, which reported an adjusted gross margin of 75.5% in fiscal 2025, AMD's margin stood at 53%. This significant margin gap provides a thinner cushion to AMD and limits its ability to absorb cost increases without eating into profits.
AMD's China Exposure Presents a Major Risk
Further, China's role in AMD's business is important. AMD reported revenue of $6.23 billion from China (including Hong Kong) in 2024, about 24.2% of its total sales. Thus, a retaliatory tariff from China on American technology products would make AMD's chips more expensive for Chinese buyers, potentially hampering its competitiveness in one of its most important markets.
Wall Street has begun recalibrating expectations. KeyBanc Capital Markets analyst John Vinh recently downgraded AMD from 'Buy' to 'Hold,' citing uncertainty around its artificial intelligence (AI) business in China and concerns over margin sustainability. This has deepened investor skepticism, especially with AMD lagging behind Nvidia in several key performance metrics.
AMD's Growth Drivers Still Intact
Yet, it's not all doom and gloom. AMD's core business remains strong, and the company continues to show impressive growth in areas critical to its long-term strategy, particularly in data centers and AI. In 2024, AMD reported $12.6 billion in revenue from its data center segment, marking a 94% year-over-year increase. This was primarily driven by surging demand for its Instinct MI300X GPUs.
The company is also moving aggressively to cement its place in the AI ecosystem. Its acquisition of Silo AI marks a strategic move to enhance its in-house AI development capabilities. With this acquisition, AMD aims to deliver high-performance AI models optimized for its hardware architecture.
On the product side, AMD is rolling out an ambitious lineup. The MI325X GPUs are ramping production, and the company is already laying the groundwork for its next-generation MI350 series. These GPUs are expected to deliver significant performance and energy efficiency. Looking further, AMD has its eyes set on the MI400 series. It's also investing heavily in ROCm, its open software platform.
AMD Stock's Valuation
While analysts have a 'Moderate Buy' consensus rating on AMD stock, the recent price drop may represent a value opportunity for long-term investors. With a forward price-to-earnings ratio of 21.6x, AMD appears attractively priced, especially given its double-digit earnings growth potential.
For instance, analysts expect AMD to post earnings per share (EPS) of $3.87 in 2025, up 47.7% year-over-year. AMD's bottom line is projected to increase 36.2% in FY26.
However, AMD's valuation becomes less compelling when compared to Nvidia, which trades at a slightly higher 23.5x P/E but commands superior margins, has a leading market share in the AI space, and is well-placed to navigate macroeconomic shocks.
Conclusion: Bargain or Value Trap?
Ultimately, while AMD's stock has become cheaper and its long-term potential remains intact, its short-term outlook remains clouded by geopolitical risks and competitive pressures. Thus, investors looking for a stock in the semiconductor space may find Nvidia to be a more appealing option.