Advanced Micro Devices (NASDAQ:AMD) came close to reaching the $60 level last week after peaking at $59.27. The problem is its valuation: the desktop and notebook chip sales are very good but not great. Nvidia (NASDAQ:NVDA) posted solid gaming graphic card sales that will hurt AMD’s GPU division. And the macroeconomic headwinds will hurt semiconductor stocks.
AMD has the macro headwind to overcome first. So even though the stock came close to the $60 level, the sector must correct for a sharp Q1 slowdown. Micron (NASDAQ:MU), Intel (NASDAQ:INTC), and Qualcomm (NASDAQ:QCOM) are also at risk of giving up gains. Since the sector acts as a forward indicator, markets are signaling a slowdown in output and demand in China. The country shut down most factories and local business activity. The ever-rising spread of infections in the new coronavirus is forcing the country’s people to stay at home. Working from home is not a solution for sustaining factory output.
It remains to be seen when the country is open again for business. For now, China’s Henan province will stay closed until March 10. With that many weeks of closure, investors will not pay a premium on AMD stock. Therefore, a drop down to $50 or $45 is possible. Buy the stock at those prices.
