Motley Fool: Growing share in chipsOctober 16, 2022
Advanced Micro Devices (Nasdaq: AMD) is a promising company in the semiconductor industry, with its price recently pushed down amid the overall market’s pullback. The company has also warned that the coming quarter’s results will be disappointing. If you can stomach the turbulence and plan on holding for a few years, this is a tech stock to consider buying.
Long considered second fiddle to Intel, AMD and its suite of semiconductors have been building momentum for over a decade now, after it shed its manufacturing business to focus on chip design. That has given AMD the resources to steadily eat into Intel’s lead in processors – not just those used in consumer electronics like PCs and laptops, but also in the highly lucrative and fast-growing infrastructure for cloud computing.
AMD’s megamerger with Xilinx (the leader in field-programmable gate arrays) early in 2022 opened up a new front against Intel. Meanwhile, AMD’s gaming GPU cards are priced competitively against industry leader Nvidia’s offerings.
The semiconductor industry is undergoing rapid change and expansion right now. Estimates point toward global chip demand reaching $1 trillion a year by 2030, more than 60% higher than global sales today. There’s volatility ahead, but over the long run, AMD could prosper well. (The Motley Fool owns shares of and has recommended Advanced Micro Devices.)
Ask the Fool
Q. Is the best way to invest to just “buy and hold”? – P.Y., Morgantown, West Virginia
A. It’s certainly hard to beat that approach. Even better, buy TO hold: Instead of just buying and blindly holding, you buy while planning to hold as long as the company remains healthy with great growth prospects. This rewording reflects the fact that you should, ideally, keep up with your holdings, reading their quarterly and annual reports and following them in the news.
An exception to that would be if you just invest in a low-fee broad market index fund, such as one that tracks the S&P 500. If so, there’s no need to read financial reports or the news; just aim to keep adding money to it over time, and hold – for many years, if possible.
Q. Do small companies have low stock prices and big companies have high stock prices? – C.I., Gilbert, Arizona
A. Not at all. A stock’s price by itself doesn’t tell you much. Consider, for example, that Comcast recently had a market value near $133 billion and a stock price near $30, while defense company Northrop Grumman’s market value was much lower, at $75 billion, but its shares were at $485. (Market value, or market capitalization, is simply the current stock price multiplied by the number of shares.)
To get a handle on how fairly valued a stock might be, you need to relate its price to other numbers, such as earnings. A price-to-earnings (P/E) ratio divides the current stock price by the earnings per share (EPS) over a full year. Northrop Grumman’s P/E ratio was recently around 13.5, while Comcast’s…