Advanced Micro Devices (AMD) (AMD) and Nvidia (NVDA) pass a crucial test in this month of May.
The two chipmakers have experienced hell on the stock market since the beginning of the year.
Worried about global growth, investors have fled tech and semiconductor and microprocessor makers in particular, despite seemingly solid fundamentals.
The reason? A lack of chips to manufacture their products.
This is the case in the automotive sector as well, where manufacturers have had to halt the assembly of certain models for lack of parts. Electronics, IT and other industries have also suffered, as they scramble for the right materials.
This chip crisis is expected to last until at least 2024, industry sources say. However, semiconductor manufacturers did not take advantage of the earlier boom times, thus ending the golden period of 2021.
Sharp Drop in AMD and Nvidia Stocks
AMD shares are down 37.1% since Dec. 31. In the first quarter of 2022, AMD shares fell 24.01%.
As for Nvidia shares, the decline is 33.6% since December and 28.4% for the first quarter completed on March 31.
AMD shares are trading at the time of writing at $90.50, down from $143.90 on Dec. 31.
The current Nvidia stock price is $195.33 versus $294.06 on Dec. 31.
Nvidia, AMD and Intel sell graphics processing units and CPUs to gamers.
They are also prominent producers of semiconductors and systems for application in cloud servers, self-driving cars, the metaverse, artificial intelligence and more.
After months of uncertainty, the two companies will publish their quarterly results this month.
AMD kicks off May 3 at the close. Investors will then wait for May 25 to find out how Nvidia performed in the first quarter of its fiscal year 2022.
Analysts predict that AMD will report a substantial increase in profit and revenue, but at a slower pace than in past years. Analysts estimate EPS of $0.91 vs. $0.52 in Q1 FY 2021. Revenue is also expected to grow.
But investors want to know about AMD's growth plans. The company announced in April the acquisition of Pensando Systems Inc., a provider of networking and security services, for $1.9 billion.
This transaction is expected to give AMD an advantage in the data center sector, a high-growth market.
"The Pensando team brings world-class expertise and a proven track record of innovation at the chip, software and platform level which expands our ability to offer leadership solutions for our cloud, enterprise and edge customers," Lisa Su, AMD chair and chief executive officers, said in a press release.
Pensando’s products are already deployed at scale across cloud and enterprise customers, including Goldman Sachs, IBM Cloud, Microsoft Azure and Oracle Cloud.
Will a Good Surprise Be Enough?
Investors also want to scrutinize the Enterprise, Embedded and Semi-Custom segment, which includes server and embedded processors rather than processors for desktops and laptops.
This division is expected to continue to grow. Any sign of a slowdown is likely to heighten investor fears.
AMD has managed in past quarters to pleasantly surprise investors. It is possible that this time even a good surprise is not enough given the context.
Demand is likely to be hurt by rising concerns about recession and the prospect that consumers will cut spending and reduce purchases, observers say.
That's particularly possible since during the pandemic, consumers and companies bulked up on tech tools, particularly PCs.
These sources suggest that factors portend a downturn in the PC market. In general, many investors are betting on a slowdown in hardware sales in 2022 and 2023.
Nvidia is the chip maker that could be the most affected by these growth fears, because it generates much of its sales from video gaming rigs.
Analysts believe the company could be hit hard once households pare back purchases.
Investors are also linking Nvidia's future to changes in the crypto space, especially in the ethereum blockchain.
Ethereum in June is supposed to be moving to a new version and a new transaction validation mechanism that will change the way the native cryptocurrency of this platform, ether, is minted.
The change is likely to reduce the number of GPUs used to create ether, and GPUs are one of Nvidia's cash cows.
