Technology Stocks See Selloff as AI Hype Fails to Deliver
The technology sector experienced a selloff at the start of the year, as the hype surrounding artificial intelligence (AI) failed to materialize into actual business growth. This was reflected in the performance of Advanced Micro Devices (AMD) stock, which saw a 6% drop on the first trading day of 2024. The semiconductor specialist’s share price fell after news broke that ASML had halted shipments of its lithography machines for semiconductor fabrication to China, reportedly due to pressure from the US government. In addition, tech stocks took a hit after Barclays analyst Tim Long downgraded Apple’s stock rating from “neutral” to “underweight,” citing a less favorable outlook for the iPhone line and potential weakening of the company’s services business.
The ASML news highlights the ongoing tensions between the US and China, with the semiconductor industry caught in the middle. As the US limits China’s access to high-performance AI chips, China has indicated its plans to bring Taiwan under its control. This poses a risk for AMD, as it relies on chip-fabrication services from Taiwan Semiconductor Manufacturing. Additionally, AMD’s stock has been pushed to a growth-dependent valuation due to the surge in interest for AI technologies and momentum in the broader semiconductor space.
While AMD’s stock has seen explosive gains over the past year, its recent business performance has been less impressive. Revenue only rose 8% year over year in the third quarter, and non-GAAP earnings per share were up 21%. This highlights the speculative nature of the stock’s outlook, as its 114% increase in share price over the past year has been largely driven by excitement for future opportunities in AI.
AMD has the potential to be a successful long-term investment. The company is gaining market share from Intel in the central processing unit and server markets, and may also make headway against Nvidia in the graphics processing unit space, which is crucial for the AI race.
The Motley Fool Stock Advisor analyst team has identified 10 stocks they believe will produce significant returns in the coming years, but AMD did not make the cut.
