AMD Stock: This Tiny $2 Stock Is Poised to Skyrocket

AMD Stock Is a Steal at Dollar 2AMD Stock Is a Steal at $2

In the middle of all the current market uncertainty, there is one stock with the potential for massive gains: Advanced Micro Devices, Inc. (NASDAQ:AMD). AMD stock already surged 33% in March, but I think there is more room left on the upside.

Here’s why…

For a long time, AMD was the main competitor to heavyweights like Intel Corporation. It was in the business of selling microprocessors to companies that made personal computers, but that’s not the most apt comparison anymore.

These days, NVIDIA Corporation is AMD’s main rival. After a long, knock-down, drag-out fight, these were the last two firms left standing in this niche corner of the market. Both of them specialize in graphics processors that are a cut above everybody else’s.

And for the most part, NVIDIA has been dominating the final leg of the competition. I was pretty squarely in the same camp as those who thought AMD stock would fall until it was cheap enough for another semiconductor company to buy.

But as it turns out, I was wrong. One of the most important things in investing is learning to course-correct when new information becomes available. And I recently learned something that made me think there’s more than enough space for both firms.

In fact, the indicator that changed my mind suggests that AMD stock could skyrocket in 2016. In a presentation last month, AMD claimed it powers 83% of all the virtual reality (VR) devices that are coming out this year. That means the company’s chips are in Facebook’s “Oculus Rift,” the Samsung “Gear VR,” and Sony’s “Morpheus.” (Source: “AMD bets big on virtual reality with new cards, partnerships,” PCWorld, March 14, 2016.)

What’s really incredible is that AMD isn’t stopping at just powering the devices. It has gone full throttle on virtual reality, pouring investments into new chips that are fast becoming the gold standard of VR processors. This one fact turned me around on AMD.

AMD has been losing significant ground to NVIDIA over the last couple of years. A recent report pegged AMD’s share of the market at 11.5% in the fourth quarter of 2015. NVIDIA, by contrast, commands more than 16.0% of the overall graphics market. (Source: Ibid.)

So why fight a losing battle when you can just go build an empire elsewhere? AMD has poured between $220 million and $245 million into research and development (R&D) every quarter to no avail. There is barely any return on investment for its hard work. The company still lost $660 million in 2015, so it’s not like it could afford to keep fighting this fight.

By switching gears to virtual reality, AMD can hopefully reset its brand. It should become the trademark supplier for all things virtual reality by taking a huge slice out of this emerging industry. Some estimates suggest virtual and augmented reality could be a $150-billion industry by 2020. (Source: “Augmented And Virtual Reality To Hit $150 Billion, Disrupting Mobile By 2020,” Techcrunch, April 6, 2016.)

The market already gave AMD stock a 33% boost to compensate for earlier losses, but as the potential of VR becomes clear, the stock could surge to even higher levels.