1 growth stock that could move the market in early August
When a stock index loses 20% of its value from its all-time high, it has officially gone from a bull market to a bear market. This tends to happen every 3.6 years (on average), and both the large S&P500 index and the tech-heavy Nasdaq-100 the index crossed this threshold in 2022.
Navigating these market conditions is not easy, and investors are understandably nervous. But they shouldn’t be, because ignoring short-term noise by taking a long-term view is one of the keys to generating positive returns.
Still, investors are watching the financial health of consumers and the strength of the US economy to determine if a stock market rally is imminent. August 4, Advanced micro-systems (AMD 1.86%) will release its earnings report for the second quarter of 2022, and that could give investors the clues they’re looking for.
AMD serves both consumers and businesses
Advanced Micro Devices is one of the world’s most renowned producers of advanced computer chips (commercially known as semiconductors). Consumer products and services are increasingly reliant on digital capabilities, so their appetite for more processing power is only growing. This has caused the demand for semiconductors to skyrocket in recent years.
AMD’s hardware serves a variety of purposes, which means end users are a healthy mix of consumers and businesses. That’s why the company’s upcoming second-quarter results could provide important insights into the broader economy.
For example, AMD’s Enterprise, Embedded, and Semi-Custom business unit is responsible for chips in both sonyof the PlayStation 5 and MicrosoftMicrosoft’s Xbox game consoles, in addition to Microsoft’s line of Surface laptops and tablets. But this same segment also serves the world’s leading cloud service providers, such as Amazon and Alphabetit’s Google.
In Q1 2022, Enterprise, Embedded and Semi-Custom generated record revenue of $2.5 billion, representing 88% year-over-year growth. The second quarter results will be very revealing for several reasons. Are tech companies accelerating their investments in their cloud platforms? If so, it could mean they are confident about the strength of the economy.
Similarly, if AMD reveals increased chip demand for the aforementioned consumer products, then perhaps households are managing high inflation and rising interest rates better than investors expected.
Don’t forget the long term
Despite the usefulness of AMD’s upcoming earnings report on August 4, it’s important for investors to focus on the big picture.
Between 2016 and 2021, AMD grew its total revenue at a compound annual rate of 31%. While that’s incredibly impressive, analysts are betting the company will generate $26.2 billion in sales for the full year 2022, which would mark a rapid acceleration in growth to 59% year-over-year.
That’s partly thanks to the recent acquisition of Xilinx, which could add around $4 billion to AMD’s revenue this year. Xilinx is a global leader in adaptive computing, which AMD says will be the next frontier in semiconductor hardware. It’s a breakthrough technology that adapts to user needs in real time, reducing the need for constant physical chip upgrades.
Together, AMD and Xilinx now dominate the high-performance computing industry and are chasing a $135 billion opportunity.
AMD stock is a great value
Excluding AMD’s upcoming second quarter results, the company has generated $4.3 billion in non-GAAP net income (profit) over the past four quarters, translating into earnings per share of $3.41. That puts its stock at a price-earnings multiple of 26.2, which roughly matches the 24.6 multiple of the Nasdaq-100 index.
But AMD’s stock is down 41% in 2022 alone, alongside the broader tech market sell-off, so it’s significantly cheaper than it was a short time ago. Yet, even taking that loss into account, he still generated a 530% return over the past five years, which really highlights the importance of having a long-term view, regardless of the results at hand. come from the business. For context, this return is five times the return of the Nasdaq-100 over the same period.
Investors should learn what they can about the economy from AMD’s Q2 report, but they should stay focused on where the stock might be in a decade. (Hint: it will probably be much higher than it is today.)
Suzanne Frey, an executive at Alphabet, is a board member of The Motley Fool. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a board member of The Motley Fool. Anthony Di Pizio has no position in the stocks mentioned. The Motley Fool holds and recommends Advanced Micro Devices, Alphabet (A shares), Alphabet (C shares), Amazon and Microsoft. The Motley Fool has a disclosure policy.