AMD expects revenue drop 📉 Semiconductor stocks losses 🔌

American chipmaker Advanced Micro Devices (AMD.US) warned investors of a revenue decline in Q3 2022 due to weaker PC market demand and worsening supply chain problems. The company lowered forecasts, with shares already down nearly 6% before the open:

• Q3 revenue will be roughly $5.6 billion vs. earlier forecasts of around $6.7 billion
• Revenue from the client market fell 40% year-over-year to about $1 billion
• AMD reported a non-GAAP gross margin of close to 50%, versus a previous expectation of 54% 
• Gaming (14% y/y) and Data Center (45% y/y) revenues increased
• The acquisition of Xilinx earlier in the year proved to be a hit for AMD, generating $1.3 billion in revenue for the company

AMD during Q2 assumed a maximum of $200 million deviation in further revenue estimates, the difference of nearly 1 billion is also a surprise for the company, according to the company, there is currently a significant inventory correction taking place in the overall computer market. It is worth adding that even AMD's previous forecasts, which have not been 'proven', looked quite pessimistic, and their update affects the already weak sentiment of the semiconductor market. If AMD's quarterly sales come in at $5.6 billion, it will still represent almost 29% growth compared to Q3 2021, but will shake the quarterly revenue growth rate. The market has been expecting AMD to keep beating earnings forecasts and maintain a steady pace of growth through which the stock has particularly suffered recently due to its exorbitant P/E valuation. 

• Stacy Rasgon, a semiconductor market analyst at Bernstein, warned investors of a deteriorating semiconductor market picture in which the stock prices of chipmakers Intel, TaiwanSemiconductors, AMD and Korea's Samsung are suffering.

The chart shows an increase in 5-year CDS spreads (credit default swap) for tech companies, illustrating the priced-in increase in bond default risk and financial instability among US tech stocks. We saw a similarly rapid rise during the 2008 - 2009 financial crisis. Source: Refinitv, Topdowncharts

• In pre-opening trade, shares of Intel (INTC.US), Taiwan Semiconductors (TSMC.US) and Nvidia (NVDA.US) are falling, having already reported up to $400 million in quarterly losses due to U.S. sanctions on China's tech market that include a ban on technology exports and restrictive licensing. Dell (DELL.US) and HP (HPQ.US) are also losing stock.
• Samsung also lost, showing its first drop in quarterly earnings since 2019. The forecast cuts look worrisome in the context of the upcoming earnings season. The Korean giant's profit surprised analysts, falling 31.7% year-on-year amid inflation hitting demand for smartphones, home appliances and chips;
• The United States plans to move some semiconductor production from Taiwan to Phoenix, Arizona. The May 2020 Taiwan Semiconductors deal, initially valued at $12 billion, is now being widely discussed in the U.S., which has faced the logistical challenge of diversifying its critical technology supply chain and recreating domestic production;
• Increased recession risk, still-high inflation and a strong dollar are eroding technology sector margins and driving up financing costs; stocks of companies driven by debt and venture capital and private equity fund inflows may be particularly vulnerable during this period, likely to cut spending and reduce risk exposure.

Advanced Micro Devices (AMD.US) shares. The price of the stock has encountered strong resistance in the form of the 200-session SMA200 average running around $70, the opening near $64 indicates further downside potential although the stock market may be supported by a possible weaker NFP reading at 2:30 p.m. The company's fundamental valuation has cooled dramatically, with the P/E ratio settling around 19 points and P/B ratio reaching 2, making the valuation appear to be within the index average. The PEG Ratio (the stock's valuation relative to expected revenue growth rate and expected earnings per share) has cooled tremendously, at 0.67, which may encourage contrarian investors to take an interest in the company's stock. Source: xStation5