AMD (AMD -5.04%) stock is falling in Tuesday’s trading. The semiconductor company’s share price was down 5.4% as of 10:15 a.m. ET, according to data from S&P Global Market Intelligence. Meanwhile, the S&P 500 index was down 0.7%, and the Nasdaq Composite was down 1.3%.
The broader market is seeing negative momentum in conjunction with rising macroeconomic concerns. Wall Street seems to be worried that inflation may not be under control yet, and Home Depot‘s recent earnings report intensified those concerns.
What do Home Depot’s results have to do with AMD?
Home Depot reported quarterly results before the market opened this morning and reported a 3.5% decrease in same-store sales. The retail giant is viewed as a bellwether for the economy at large, and the company’s management specifically stated that persistent inflation was causing customers to be more cautious. Why is this bad news for AMD stock?
On the heels of 110% gains over the last year, AMD’s valuation has been pushed up to a much more growth-dependent valuation. If inflation continues to come in significantly above the Federal Reserve’s target level of 2%, the central banking authority’s pivot to cutting interest rates could be pushed further out. If so, that would be bad news for AMD and other stocks with growth-dependent valuations.
What comes next for AMD stock?
Investors broadly expect that the Federal Reserve will begin cutting interest rates this year. Some analysts had been hoping that the Fed would begin reducing rates in March, but that no longer appears to be in the cards. According to a recent Reuters poll, a slim majority of economists now expect the first cut to happen in June.
The stock market, and growth stocks in particular, could see bearish sentiment increase if expectations for the arrival of rate cuts shift further out. The interest rate outlook will play a key role in AMD’s stock performance this year, but a different catalyst could soon wind up shaping its valuation.
AMD stock has skyrocketed over the last year thanks to excitement surrounding artificial intelligence, and its share price will likely make moves in conjunction with Nvidia‘s upcoming fourth-quarter report. Nvidia will report earnings after the market closes tomorrow.
Just as Home Depot is a bellwether for the retail space and broader U.S. economy, Nvidia is a key bellwether for AI — and its Q4 report can be expected to have a significant impact on the overall stock market’s near-term performance. While Nvidia is a key competitor, AMD shareholders should actually be hoping that the rival AI player’s fourth-quarter report knocks it out of the park.
Keith Noonan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, Home Depot, and Nvidia. The Motley Fool has a disclosure policy.
