Why Advanced Micro Devices 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 Advanced Micro Devices have plunged today by as much as 16% after an analyst downgrade.

So what: Goldman Sachs analyst James Covello dropped his rating on AMD from "neutral" to "sell," believing that the recent rally is overdone and shares will return from whence they came. Through yesterday's close, shares had gained a whopping 55% month to date, largely on hopes that it would benefit greatly from powering next-generation video game consoles like Microsoft's next Xbox, which is set to be detailed later this month.

Now what: Covello believes that investors are being to optimistic regarding AMD's gaming prospects, noting that similar gaming-related rallies have occurred in the past and subsequently faded. Continued weakness in the PC market would offset any upside related to gaming consoles. The analyst has a $2.50 price target, which implies roughly 43% downside and is around where shares were valued before May's sharp rally.

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The article Why Advanced Micro Devices Shares Plunged originally appeared on Fool.com.

Fool contributor Evan Niu, CFA, has no position in any stocks mentioned. The Motley Fool owns shares of Microsoft. 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 Motley Fool has a disclosure policy.

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