Why Bears Love AMD Stock
The current stock market is all about the social media and Internet stocks but, back in the l990s and into early 2000, it was all about the meat-and-potatoes behind personal computers (PCs) and servers. Back then, old-economy technology stocks like Cisco Systems, Inc. (NASDAQ:CSCO), which I just looked at, and central processing unit (CPU) chipmakers Advanced Micro Devices, Inc. (NASDAQ:AMD) and Intel Corporation (NASDAQ:INTC) were the stars of Wall Street.
The PC was all the rage and was achieving a rapid adoption rate in the business and retail market. Advanced Micro Devices and Intel were engaged in a war to see who could develop the fastest CPU, which is the core component in the PC.In early 2000, prior to the technology meltdown, AMD stock was trading at just below $50.00 while Intel was below $80.00.
Fast-forward to today and, while Advanced Micro Devices and Intel continue to compete in the dying PC space, we have seen numerous other chipmakers emerge in more growth-oriented areas such as mobility.AMD stock was trading way down at $6.40 last Thursday, which is nowhere near where it was in its glory days, Advanced Micro Devices is at its highest level since May 2012.
Now, comparing Advanced Micro Devices stock to Intel stock, the latter is at least rallying toward the $40.00 level, which compares favorably to the situation at AMD stock.
The price chart of AMD stock and Intel shows the relative under-performance of Advanced Micro Devices stock since 2000.
Chart courtesy of StockCharts.com
AMD stock is well up from its 52-week low of $1.65, but the current move may face some tough resistance, given the average price target of $6.12. (Source: “Advanced Micro Devices, Inc. (AMD),” Yahoo! Finance, last accessed September 22, 2016.)
My Bear Case on AMD Stock
There is some hope on Wall Street for Advanced Micro Devices, but it will not be easy, given the competition from Intel and in the non-PC segment.Advanced Micro Devices saw its revenues plummet to $3.99 billion in 2015 from $5.50 billion in 2014. AMD continues to be a money-loser.Some are arguing that AMD is expected to report revenue growth of 3.50% and 6.0%, respectively for 2016 and 2017, but the company will continue to lose money. (Source: Ibid.)
Intel is predicted to grow revenues at 5.90% and 4.0% for the same years, but the company is quite profitable compared to Advanced Micro Devices. (Source: “Intel Corporation (INTC),” Yahoo! Finance,last accessed September 22, 2016).
My view is that AMD stock is extremely speculative and has a long way to go. There is optimism about its soon-to-be launched next generation “Zen” processor, but the problem is that, not only is the PC market fading, but Intel chips are generally still considered to be a better option.
Christopher Danely, an analyst with Citigroup Inv (NYSE:C), has a “sell” rating on Advanced Micro Devices stock, believing that Intel continues to have the upper hand. (Source: “AMD’s ‘Zen’: Intel Has the Better Chip, Says Citi,” Barron’s, September 13, 2016.)
Moreover, there’s also competition in the non-PC market, where both AMD stock and Intel lag, but Intel has made greater strides to date.I’m just not convinced that Advanced Micro Devices has what it takes to catch up with Intel and other innovative chipmakers. It may be a little too late.