We wanted to provide a quick note on how we’re thinking about semiconductor stocks given yesterday’s carnage in the sector. The group got hit extremely hard as investors may be nervous about how the tragic Ukraine-Russia conflict will impact global economic growth and the global semiconductor supply chain. Russia and Ukraine are large producers of neon — a rare gas critical to the semiconductor manufacturing process. While this is a risk worth monitoring, we think Tuesday’s semiconductor sell-off looks excessive and overdone. Portfolio holding Advanced Micro Devices (AMD) was down 7.7%, Marvell Technology (MRVL) was down 4.95% and Nvidia (NVDA) was down 3.72%.

We brought up these three names, especially portfolio holding AMD, to indicate our willingness to purchase shares at this price level here. We currently own AMD and do not wish to add other names to our portfolio, yet we are willing to recommend them to subscribers. But let's focus on AMD alone and try to justify buying at this level:

Consensus estimates AMD will earn $4.00 per share in 2022, although we believe this number will have to go higher once the community sees what Xylinx will bring about. Given yesterday's closing price of $113.83/share, AMD is trading at 28.5 times next twelve month's earnings (NTM). This 28.5 multiple is materially lower than the past two years since the pandemic. This multiple is relatively low when compared to 2019, when Fed's Funds Rate was 1.55% and annual GDP growth was 2.2% (today's Fed's Funds Rate is 0.25% and annual GDP growth is 5.7% from 2021 - 2020). Given our view/expectation that the economy continues to expand above trend (above 2% annual GDP growth from 2022 - 2021), and Fed's Funds Rate to stay below 1% in 2022, we believe AMD deserves a forward P/E multiple that is above 30 times. We're arguing for a multiple expansion, as well as an upward revision for earnings power. Taken altogether, we believe AMD is at a reasonable price level here.