Concerns Mount Over AMD’s Stock Volatility Amid Market Challenges

What would be your reaction if you owned AMD Stock (NASDAQ:AMD) and its value plummeted by 60% or even 80% in the coming months? It may sound alarmist, but it’s not without precedent. AMD’s performance this year has been disappointing, showing a decline of approximately 18% since January, while the S&P 500 has remained relatively stable. The stock is facing headwinds from weaker-than-anticipated growth in its AI accelerator division, the advent of China’s resource-light DeepSeek AI model—which threatens GPU demand—and escalating macroeconomic uncertainties in the U.S., largely attributed to President Donald Trump’s tariffs. Analysts suggest that shares could drop further, potentially reaching $40 each. Here’s why potential investors should be wary.

Current Market Context

Despite a surge in demand for GPUs fueled by the generative AI boom, AMD’s AI-related revenue has not met expectations. In Q4, the company reported $3.9 billion in data center revenue, which fell short of analyst forecasts. The guidance for the current quarter is also concerning, predicting a 7% sequential decline in data center sales. This caution reflects a broader trend where enterprises may tighten budgets after years of heavy investments in AI infrastructure. The launch of the DeepSeek AI model further complicates matters, diminishing the computing resources that generative AI typically demands. Since DeepSeek is open source, it raises the possibility that major tech firms will adopt its strategies, potentially curtailing the need—and subsequently the demand—for AI computing capabilities.

Additionally, AMD may be adversely impacted by the ongoing trade tensions arising from former President Trump’s policies. The administration raised tariffs on Chinese goods from 10% to 20%, and Trump has floated the idea of an even steeper 25% tariff on all imported semiconductor chips. AMD largely relies on Taiwan’s TSMC for chip fabrication, making import tariffs a significant concern as they may elevate prices. Last year, AMD reported gross margins nearing 49%, suggesting that over half of the production costs derive from imported components. In contrast, Nvidia’s adjusted gross margins were reported at about 75.5%, indicating its costs are considerably lower. This difference means tariffs could affect AMD more severely, pushing the company to either absorb heightened costs and jeopardize margins or transfer these costs to customers, which could hurt sales volumes.

Trump’s aggressive stance on tariffs has revived concerns over inflation. With looming risks of a U.S. economic downturn or recession, the resultant increase in geopolitical tensions—including the ongoing Ukraine-Russia conflict—adds to the uncertainty. Tariffs can drive up import costs, which typically lead to higher prices, reduced disposable income, and weakened consumer spending—factors that could negatively impact AMD’s core CPU business as consumers might postpone PC and laptop purchases, reducing chip demand.

Evaluating AMD’s Resilience in Tough Times

Historically, AMD Stock has underperformed compared to the S&P 500 during economic downturns. Concerned about the implications of a market crash on AMD Stock? Our dashboard titled “How Low Can Advanced Micro Devices Stock Go In A Market Crash?” details the Stock‘s past performances during preceding market declines.

Inflation Shock (2022)

• AMD Stock dropped by 62.8%, falling from $150.24 on January 3, 2022, to $55.94 by October 16, 2022, compared to a 25.4% decline in the S&P 500.
• However, the Stock recovered to its pre-crisis peak by January 16, 2024, and reached a high of $211.38 on March 7, 2024, before settling around $100.

Covid Pandemic (2020)

• AMD Stock experienced a 34.3% decline from a high of $58.90 on February 19, 2020, dropping to $38.71 by March 16, 2020, in contrast to the 33.9% decline for the S&P 500.
• It fully rebounded to its pre-crisis peak by July 22, 2020.

Global Financial Crisis (2008)

• During the global financial crisis, AMD Stock plummeted by 87.6%, from $14.55 on October 18, 2007, to $1.80 by November 25, 2008, against a 56.8% decline for the S&P 500.
• The Stock regained its pre-crisis peak by February 27, 2017.

However, given its high valuation, the Stock seems expensive at this juncture, reinforcing the notion that it may not be a prudent choice for investors.

Premium Valuation

To summarize, AMD Stock remains pricey, trading at nearly 30 times trailing earnings. Although AMD has seen substantial revenue growth, averaging a 17.8% increase over the last three years (compared to the S&P 500’s 9.8%), this momentum is at risk if economic conditions worsen or tariffs are enforced.

Considering these factors, ask yourself: Are you prepared to retain your AMD Stock amid potential declines to $50, $40, or lower? Holding onto a declining Stock can be challenging. Trefis collaborates with Empirical Asset Management, a wealth management firm in the Boston area, whose investment strategies have yielded positive returns during the 2008-09 period when the S&P lost over 40%. Empirical has integrated Trefis’ HQ Portfolio into its strategy, aiming to deliver better returns with less risk compared to traditional benchmarks, avoiding the roller-coaster effects seen in the stock market.

Returns	Mar 2025 MTD [1]	2025 YTD [1]	2017-25 Total [2]
AMD Return	2%	-16%	797%
S&P 500 Return	-2%	-1%	161%
Trefis Reinforced Value Portfolio	-3%	-5%	651%

[1] Returns as of 3/6/2025
[2] Cumulative total returns since the end of 2016

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.