Why AMD Shares Plunged

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of chip maker Advanced Micro Devices (NYS: AMD) sank 10% on Tuesday after the company cut its second-quarter sales outlook.

So what: Management cited weak demand in Europe, China, and the overall consumer market as the main reason for the disappointing forecast, forcing several Wall Street analysts to lower their price targets on the stock. Interestingly, the bleak outlook is in stark contrast to that of main rival Intel (NAS: INTC) , which just announced plans to invest more than $4 billion in next-generation chip-making technology.

Now what: AMD now expects is second-quarter revenue to fall a worrisome 11%, much worse than its prior view of just a 3% decline. While Fools should never fret too much over short-term forecasts, sales are likely to remain under pressure from continued global weakness, as well as from Intel's recently-launched PC chip Ivy Bridge. Given all the strong headwinds working against AMD at this point, I'd be hesitant about pouncing on today's plunge.

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At the time thisarticle was published Fool contributor Brian Pacampara owns no position in any of the companies mentioned. The Motley Fool owns shares of Intel. Motley Fool newsletter services have recommended buying shares of Intel. Try any of our Foolish newsletter services free for 30 days.We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Fool's disclosure policy always gets a perfect score.

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