The tech sector has expanded rapidly in recent years. However, despite robust demand, the industry is pressured by macroeconomic headwinds and layoffs. Hence, let’s take a look at tech stocks Advanced Micro Devices, Inc. (AMD) and Exela Technologies, Inc. (XELA) and discuss why it’s best to steer clear of these stocks now.
According to an International Data Corporation (IDC) report, global IT spending is expected to slow down in 2023 as rising interest rates affect companies’ budgets.
Stephen Minton, vice president at the IDC’s data and analytics research group, said, “Tech spending remains resilient compared to historical economic downturns and other types of business spending, but rising interest rates are now affecting capital spending.”
The recent failure of Silicon Valley Bank, often regarded as the lifeblood of tech startups, has compelled companies to scramble to evaluate their financial risk.
Furthermore, the tech sector has already announced 102,391 layoffs in 2023. This is a stunning 38,487% rise over the previous year, accounting for 38% of all staff reductions. Also, technology has already cut 5% more than last year and seems on track to surpass 2001, the worst year ever during the dot-com bust.
Take a look at the stocks mentioned above:
Advanced Micro Devices, Inc. (AMD)
AMD operates as a global semiconductor company in Computing and Graphics; and Enterprise, Embedded, and Semi-Custom. It serves original equipment manufacturers, public cloud service providers, original design manufacturers, independent distributors, online retailers, and add-in-board manufacturers.
Its forward EV/Sales multiple of 6.36 is 133.1% higher than the 2.73 industry average. In terms of its forward Price/Sales, AMD is trading at 6.48x, which is 145.4% higher than the industry average of 2.64x.
AMD’s trailing-12-month Capex/Sales of 1.91% is 21.9% lower than the industry average of 2.44%. Its trailing-12-month asset turnover ratio of 0.59x is 3% lower than the industry averages of 0.61x.
AMD’s non-GAAP operating expenses increased 45.2% year-over-year to $1.60 billion for the fourth quarter that ended December 31, 2022. Its non-GAAP operating income came in at $1.26 billion, down 5% from the prior-year quarter.
The company’s net income amounted to $21 million, down 97.8% year-over-year. Also, its non-GAAP EPS decreased 25% year-over-year to $0.69 for the same period.
Analysts expect AMD’s revenue to decrease 15.5% year-over-year to $5.53 billion in the next quarter ending June 2023. Its EPS is expected to decline 39% year-over-year to $0.64 for the same period. Over the past year, the stock has lost 5.5% to close the last trading session at $95.48.
AMD’s poor fundamentals are reflected in its POWR Ratings. The stock has an overall D rating, equating to a Sell in our rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
AMD has a D grade for Growth and Stability. It is ranked #85 out of 91 stocks in the Semiconductor & Wireless Chip industry. Click here to access POWR Ratings for AMD for Value, Sentiment, Momentum, and Quality.
Exela Technologies, Inc. (XELA)
XELA provides transaction processing solutions, enterprise information management, document management, and digital business process services worldwide. The company operates through three segments: Information & Transaction Processing Solutions (ITPS); Healthcare Solutions (HS); and Legal & Loss Prevention Services (LLPS).
In terms of its trailing-12-month EV/EBITDA, XELA is trading at 87.36x, which is 649.2% higher than the industry average of 11.66x.
XELA’s gross profit margin of 18.54% is 37.6% lower than the industry average of 29.70%. Also, its EBITDA margin of 1.22% is 90.8% lower than the industry average of 13.21%.
XELA’s revenue decreased 9.2% year-over-year to $267 million for the fourth quarter that ended December 31, 2022. Its adjusted EBITDA came in at $35.50 million, down 10.1% year-over-year. Its operating loss came in at $153.10 million, increased significantly from the prior-year quarter. The company’s net loss amounted to $194.10 million, up 174.9% year-over-year.
The stock has lost 99.5% over the past year to close the last trading session at $0.04.
XELA has an overall D rating, equating to a Sell in our POWR Ratings system.
It has an F grade for Sentiment and a D for Growth, Stability, and Momentum. It is ranked #80 out of 104 stocks in the F-rated Financial Services (Enterprise) industry. We have also rated XELA for Value and Quality. Get all the XELA ratings here.
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AMD shares were trading at $93.40 per share on Tuesday morning, down $2.08 (-2.18%). Year-to-date, AMD has gained 44.20%, versus a 7.62% rise in the benchmark S&P 500 index during the same period.
About the Author: Rashmi Kumari
Rashmi is passionate about capital markets, wealth management, and financial regulatory issues, which led her to pursue a career as an investment analyst. With a master's degree in commerce, she aspires to make complex financial matters understandable for individual investors and help them make appropriate investment decisions.
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