AMD Stock: This Could Be Huge for Advanced Micro Devices, Inc.

Incomplete pyramid of computer industry“Gemini” Will Be Huge for AMD Stock

Chipmaker Advanced Micro Devices, Inc. (NASDAQ:AMD) may face stiff competition from heavyweights like Intel Corporation, but recent developments at the company make me bullish on AMD stock.AMD is recognized globally for its CPUs (central processing units) and GPUs (graphics processing units). But more than its CPU side, I’m more than optimistic about its GPU side of the business.

AMD’s “Radeon” graphics cards have been a game-changer for the company, with each succeeding chip building on new and improved features. However, the latest installment is going to be the company’s biggest development yet.

The “Radeon R9 Fury X2,” dubbed “Gemini” is expected to hit the market this year and will be AMD’s best yet concoction of technology for the next-generation industry of virtual reality. This is the last graphics card of the Fiji generation, but certainly the best yet. (Source: “AMD Officially Confirms, R9 Fury X2 Delayed To 2016 To Better Align It With The Virtual Reality Market,” WCCF Tech, December 22, 2015.)

Now, virtual reality (VR) and augmented reality (AR) are jointly touted to be the next biggest revolution in the world of technology. The VR/AR industry is expected to hit a humongous $150 billion in revenue in the next four years. (Source: “Augmented/Virtual Reality to hit $150 billion disrupting mobile by 2020,” Digi-Capital, April 2015.)

The possibilities of growth in this industry are endless for a first mover. All big tech companies are betting big on VR and AR with their headgears—Alphabet Inc with “Google Glass” and “Google Cardboard,” Facebook, Inc. with “Oculus Rift,” Microsoft Corporation with “HoloLens,” Sony Corporation with “Project Morpheus,” HTC with “Vive,” and the list goes on. AMD’s R9 Fury X2 will enjoy strong demand from all of these headgear makers as a vital input.

For the same reason, Jefferies’ analysts are now citing AMD as one of the biggest winners from the VR revolution. (Source: “Jefferies Issues Top Virtual Reality Stock Picks Going Into 2016,” 24/7 Wall Street, December 22, 2015.)

Now, the Radeon business segment of AMD, which operates under its ATI Technologies arm, is focused primarily on gaming and virtual reality and is a promising contributor to its top line. When AMD first acquired ATI Technologies, a graphics-focused company, the company’s bottom line had to take a significant hit, but over the years, the acquisition has paid off. Today, the Radeon GPUs are among the industry leaders that compete with substitutes from NVIDIA Corporation (NASDAQ:NVDA).

It is wrong to dismiss AMD stock based on its red bottom line. Let’s not forget that the company has very thin margins when you compare it with Intel or Nvidia, yet spends a much bigger portion of its gross profits on research and development (R&D) than the latter two.

The Bottom Line on AMD Stock

The cutthroat competition in the technology industry is vicious and oftentimes lethal. Those who can’t match pace have either gone extinct or became irrelevant. But there are some who have not only survived, but who have also managed to maintain a lead. AMD stock may be trading near its all-time lows but the company, per se, is in good shape.
In this race of the tortoise and the hare, others may be rooting for the hare, but I’m choosing to place my bets on the tortoise. AMD stock is poised to gain from the rise of virtual reality in 2016.

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