Will Tariffs, Lull In AI, Take AMD Stock To $40?

Question: How would you feel if you owned AMD stock (NASDAQ:AMD) and it crashed 60%, or even 80%, in the next few months? Sounds extreme? It’s happened before – and it could happen again. AMD has been struggling this year, down about 18% since January, while the S&P 500 has remained almost flat. The stock has been weighed down by weaker-than-expected growth in the company’s AI accelerator business , the unveiling of China’s new resource-light DeepSeek AI model, which could reduce demand for GPUs, and also due to mounting macroeconomic concerns in the U.S., following President Donald Trump’s imposition of tariffs. We believe the stock could fall further to levels as low as $40 per share. Here’s why investors need to be concerned.

Here’s the thing: in a downturn, AMD stock could lose considerably. There is evidence from as recently as 2022 that AMD stock lost over 60% of its value in the matter of just a few quarters. So, could AMD’s roughly $100 stock slide to around $40 levels if a repeat of 2022 were to happen? Now, of course, individual stocks are more volatile than a portfolio – and in this environment, if you seek upside with less volatility than a single stock, consider the High-Quality portfolio, which has outperformed the S&P 500 and achieved returns greater than 91% since inception.

Why Is It Relevant Now?

While the generative AI wave has resulted in surging demand for GPUs, AMD’s AI accelerator business hasn’t been faring as well as expected. Over Q4, AMD’s data center revenue – seen as a proxy for its AI chip sales – came in at $3.9 billion, missing consensus estimates. Guidance also didn’t look too good, with the company indicating that data center sales for the current quarter are likely to fall 7% sequentially. There are concerns about the broader AI market as well, as companies could become more conscious about costs after years of outsize investments in AI infrastructure. The launch of the DeepSeek AI model, reduces the need for computing capacity that generative AI models have required thus far. DeepSeek’s model is open source, and it is possible that many big tech companies could take inspiration from its methods to cut down costs. If adopted widely, this could cool off the demand for AI computing power, potentially impacting GPU demand.

President Donald Trump’s trade war could also hurt companies like AMD. The Trump administration doubled the tariff on goods from China from 10% to 20%, in addition to existing levies. Last month, President Trump also suggested the possibility of a “25% or higher” tariff on all semiconductor chips imported into the United States. Now, AMD outsources a bulk of the fabrication of its chips to Taiwan’s TSMC and import tariffs could make its products more expensive. AMD had gross margins of about 49% over the last year, meaning that the cost of its products – a bulk of which are likely imported – is over 50%. This is well ahead of rival Nvidia, which reported an adjusted gross margin of approximately 75.5%, indicating that the cost of its imported products is likely less than 25% of its revenues. This means that tariffs could have a more pronounced impact on AMD, which would need to absorb the additional costs (and potentially hurt margins), or pass them on to customers (and risk losing volumes).

Trump’s bold moves on tariffs and immigration have also stoked fears that inflation could come back. All of this means the U.S. economy could hit a rough spot, and even worse, hit a recession – our analysis here on the macro picture. When you factor in higher geopolitical uncertainty due to bold moves from the new Trump administration, these are critical risks. After all, the Ukraine- Russia war is still ongoing, trade is uncertain. Tariffs drive up import costs and typically result in price hikes, lower disposable income, and weaker consumer spending. This could hurt AMD’s bread-and-butter CPU business, as customers of PCs and laptops could delay purchases, reducing demand for chips.

How resilient is AMD stock during a downturn?

AMD stock has fared worse than the benchmark S&P 500 index during some of the recent downturns. Worried about the impact of a market crash on AMD stock? Our dashboard How Low Can Advanced Micro Devices Stock Go In A Market Crash? has a detailed analysis of how the stock performed during and after previous market crashes.

Inflation Shock (2022)

• AMD stock fell 62.8% from a high of $150.24 on 3 January 2022 to $55.94 on 16 October 2022, vs. a peak-to-trough decline of 25.4% for the S&P 500
• The stock fully recovered to its pre-Crisis peak by 16 January 2024
• Since then, the stock has increased to a high of $211.38 on 7 March 2024 and currently trades at around $100

Covid Pandemic (2020)

• AMD stock fell 34.3% from a high of $58.90 on 19 February 2020 to $38.71 on 16 March 2020, vs. a peak-to-trough decline of 33.9% for the S&P 500
• The stock fully recovered to its pre-Crisis peak by 22 July 2020

Global Financial Crisis (2008)

• AMD stock fell 87.6% from a high of $14.55 on 18 October 2007 to $1.80 on 25 November 2008, vs. a peak-to-trough decline of 56.8% for the S&P 500
• The stock fully recovered to its pre-Crisis peak by 27 February 2017

But given its extremely high valuation, the stock appears relatively expensive, which supports our conclusion that AMD is a expensive stock to buy.

Premium Valuation

In summary, it also doesn’t help that AMD stock is still expensive; it trades at almost 30x trailing earnings. Sure, Advanced Micro Devices’ Revenues have grown considerably over recent years, rising at an average rate of 17.8% over the last 3 years (vs. 9.8% for S&P 500). However, this growth could fade quickly if the economy takes a turn for the worse and if tariffs are imposed on AMD’s products.

Given this growth deceleration and the broader economic uncertainties, ask yourself the question: do you want to hold on to your AMD stock now, will you panic and sell if it starts dropping to $50, $40, or even lower levels? Holding on to a falling stock is never easy. Trefis works with Empirical Asset Management — a Boston area wealth manager — whose asset allocation strategies yielded positive returns during the 2008-09 period when the S&P lost more than 40%. Empirical has incorporated the Trefis HQ Portfolio in this asset allocation framework to provide clients better returns with less risk versus the benchmark index; less of a roller-coaster ride, as evident in HQ Portfolio performance metrics.

[1] Returns as of 3/6/2025
[2] Cumulative total returns since the end of 2016

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