Brexit May Have Created Big Opportunity in AMD Stock
Advanced Micro Devices, Inc. (NASDAQ:AMD) stock has been hammered by the Brexit fallout.
Shares fell some 13% on Friday, from $5.21 to about $4.80. AMD stock continues to trade in the $4.75 to $4.80 area, even though there has been no deterioration in the underlying business. This could be a good opportunity to scoop up shares on the cheap.
The main investment premise is that AMD, after playing second or third fiddle in the graphics processing unit (GPU) business, is taking solid and competitive steps to come out ahead. AMD has performed the equivalent of an interception in football. The company is not only showing it has survived, but that it is able to bring the game to the competition.
Indeed, apart from its mainstream “Polaris” architecture, AMD is also launching the “Vega 10” GPU. This might be one of the most advanced GPUs on the market—ever. (Source: “AMD Celebrates Vega 10 Rollout,” VR World, June 24, 2016.)
The Vega 10 represents an important milestone for AMD. While the details are not clear yet, what’s important is that the Vega 10 represents the likely Polaris successor; it will inaugurate a fifth generation for “GCN” (“Graphics Core Next”), which is the architecture from AMD that will succeed Polaris.
Here’s how the Vega 10 and GCN architecture works in the framework of AMD’s near future: The “RX480” and the rest of the Polaris card family will bring high-end cards to the mainstream market. The Vega 10 is AMD’s weapon to win back that premium market from NVIDIA Corporation. The Vega series will be available in several versions, including the Vega 10, and will have enough power to compete with NVIDIA’s “GP104.” Given the precedents with the Polaris, AMD will handily beat NVIDIA on price.
AMD’s future has already begun but AMD stock has not reacted yet. It seems the markets are more risk-averse in the face of the Brexit effects. Still, AMD’s Radeon group has all the graphics cards to draw investors’ interest as the effects of the storm from Europe dissipate. AMD has staked its future on a new family of cards, which promises better or equal performance to the competition at a much lower price.
The Radeon “RX 480,” for those who don’t know, is the first card to showcase AMD’s innovative—and now state of the art—14-nanometre finFET processing technology. Translated to plain English, this technology allows users to have a better time while playing their video games. It increases performance and efficiency, yet it targets the mainstream market at an aggressive price point. (Source: “AMD Radeon RX 480 Series Unleashed With Polaris 10 GPU – Sweet $199 US Price and Up to 8 GB GDDR5, VR-Ready Gaming Performance,” WCCF Tech, May 31, 2016.)
Rumors suggest that AMD has already started to ship the new Radeon RX 480. AMD is said to have 20-times larger stocks of RX 480 cards, based on the “Polaris 10” GPU architecture, than competitor NVIDIA did with the “GTX 1080” at launch. Yet, if that fails to grab investors’ attention, consider that while AMD has barely launched the RX 480, it’s already thinking of the future—and that future has a name: the Vega 10. (Source: “AMD Radeon RX 480 Reaches US Stores in 25 Times More Stocks Than GTX 1080,” MobiPicker, June 27, 2016.)
While the company has a great story, this has yet to be reflected in AMD’s stock price. Today, analysts have set a high target of $6.00 per share. This is low considering the current potential. Shares have also taken a big hit this past week, but this problem is external. It comes from across the Atlantic with the Brexit risk. From a business point of view, AMD is fully armed to take on the competition.
The bottom line: AMD has started a complete product renewal and the market started to take notice last February. This is why the stock has gone up since then. It’s also why it will likely resume its bullish course once the overall market has absorbed the Brexit fallout.