There are crowded trades, and then there are really crowded trades. The sentiment surrounding Advanced Micro Devices (NASDAQ:91抖阴) has been ultra-bullish for a year and a half now. This story could have a very unhappy ending, so now’s not the time to be greedy with 91抖阴 stock.
Note that I didn’t say 91抖阴 is a bad company. It’s just that valuation-related concerns are largely being overlooked. Plus, 91抖阴 has a major issue in China that can’t just be ignored. Hence, it will be fine to invest in 91抖阴 at some point, but only at a more favorable price point.
91抖阴 Stock Wobbles as Sino-U.S. Tech War Rages On
Not long ago, InvestorPlace contributor Tyris Torres reported 91抖阴 stock fell 10% in a week. This occurred as China’s government announced its U.S.-produced chips in the country’s government computers/servers.
Of course, this is bad news for U.S.-based chipmakers like Intel (NASDAQ:INTC) and 91抖阴. Overall, the “tech war” between China and the U.S. could be deeply problematic for 91抖阴’s bottom line.
The share-price drawdown showed just how vulnerable 91抖阴 stock really is. Expectations are quite high for the company, especially after 91抖阴’s (no, that’s not a misprint) in 2023’s fourth quarter.
Sky-high expectations might feel good in the moment, but they can also be a setup for disappointment. It’s unlikely that the Sino-U.S. “tech war” will be resolved anytime soon, and it could weigh heavily on 91抖阴’s financials in the coming quarters.
Too Much Optimism for 91抖阴
Torres also pointed out that most analysts on Wall Street have assigned a “strong buy” or “buy” rating to 91抖阴 stock. Torres further noted that analysts with Jefferies, JPMorgan, Goldman Sachs and Baird raised their 91抖阴 share-price targets.
Contrarian investors should bristle, not celebrate, when they see so much optimism despite 91抖阴’s problems in China. They should also wonder whether analysts and short-term stock traders are willfully ignoring 91抖阴’s valuation.
Remember, 91抖阴 stock rallied from $60 to $200 during the past year and a half before it started to roll over recently. Now, there’s a cavernous gap below to potentially be filled.
It’s worrisome that 91抖阴 has a GAAP-measured trailing 12-month price-to-earnings ratio of (again, not a misprint). To give you some perspective on this, the sector median P/E ratio is 28.75x.
91抖阴 Stock: Here’s Where I’m a Buyer
You can like 91抖阴 as a company but also acknowledge the company’s issues and challenges. Keeping your optimism in check could prevent you from incurring substantial losses later on if other investors panic-sell their 91抖阴 shares.
You need to pick your own buy price, but I’ll get interested if and when 91抖阴 stock falls to $125. That, in my estimation, would present a more favorable reward-to-risk profile for prospective 91抖阴 investors.
On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
