More Upside Ahead in AMD Stock
Markets have their ups and downs, but Advanced Micro Devices, Inc. (NASDAQ:AMD) stock just kept climbing. In the past three months, AMD stock skyrocketed more than 60%.
To me, though, this doesn’t really come as a surprise. More than three months ago, I argued precisely why AMD stock could skyrocket.
The good news is that if you missed this round of surges, you might not be too late to catch the next one.
Let me explain…
Financials Starting to Improve
Quite often, we see companies with great prospects, but they lack solid financials. Fortunately, AMD is no longer one of them. The company had some tough times in the past but now, it’s on its way to clawing back some market share. Its financials could start improving soon.
In the first quarter of 2016, AMD generated $832 million in revenue, beating Wall Street’s estimate of $818 million. The company’s adjusted net loss narrowed to $0.12 per share, while analysts were expecting a loss of $0.13. (Source: “AMD Reports 2016 First Quarter Results,” Advanced Micro Devices, Inc., April 21, 2016.)
The best part is that the company said that its era of revenue declines is about to come to an end. For the second quarter of 2016, AMD expects its revenue to increase by 15%, plus or minus three percent, sequentially.
If you play games on your computer, you’d know that a powerful central processing unit (CPU) and graphics processing unit (GPU) are necessary components to build a good gaming PC. Now, it looks like AMD has these requirements covered.
In March, the company introduced two processors—“AMD A10-7890K” and “AMD Athlon X4 880K.”
The A10-7890K processor is the company’s fastest chip with integrated graphics. It has four CPU cores and eight “Radeon R7” GPU cores. The best part is that it retails for $165.00, which is great for gamers wanting a quality chip on a budget. It allows users to build a full-fledged gaming desktop for less than $500.00.
AMD’s graphics card business could also be on the rebound. Last month, Wells Fargo & Co (NYSE:WFC) analyst David Wong said that AMD might be able to take back some market share from the leader in graphics chips—NVIDIA Corporation (NASDAQ:NVDA). (Source: “AMD Taking GPU Share from Nvidia, Says Wells; All Eyes on ‘Polaris’,” Barron’s, May 12, 2016.)
“We think that Nvidia’s expectations and AMD’s graphics growth momentum suggest that AMD is beginning to regain graphics revenue share,” said the analyst. “If AMD manages to build momentum in gaining graphics share in 2016, we think that this could be a risk to Nvidia’s stock.” (Source: Ibid.)
Today, almost every tech giant is—or is thinking about—getting into the virtual reality (VR) industry. But while being amazed by the world you see through the “Oculus Rift,” don’t forget that for most VR headsets to work, they need to be connected to a rather powerful computer. And the good news here is that AMD chips can be found in some of the most affordable VR-ready computers.
Last month, AMD announced that its new line of VR-ready graphics cards would start at $199.00. At first, the stock market did not really like the announcement because AMD’s pricing was quite a bit lower than comparable products, which often go for around $399.00. However, lower pricing is exactly what the company needs to execute its new strategy to expand the addressable market. (Source: “AMD Showcases New High-Performance Solutions at Computex Taipei 2016,” Advanced Micro Devices, Inc., May 31, 2016.)
VR gadgets are not cheap. The “Oculus Rift” headsets start at $599.00, while an HTC “Vive” costs $799.00—and that’s excluding the cost of a computer to run the headset.
VR-ready computers are often more expensive than the headsets. According to Raja Koduri, senior vice president and chief architect of AMD’s Radeon technologies group, “Less than one percent of PC users have systems that are capable of doing VR. The entry point is very, very high.” (Source: “AMD Prices 3-D Tech to Spur Virtual Reality Market,” The Wall Street Journal, May 31, 2016.)
With the company’s new pricing strategy, though, VR-ready PCs powered by AMD’s new lineup of chips could have a more mass market-friendly starting price. That would allow consumers with smaller budgets to get into VR, thus expanding AMD products’ addressable market.
The Bottom Line on AMD Stock
The company is firing on all cylinders. It has built solid products with a great pricing strategy. Once the new chips translate into sales and profits, AMD stock could see further upside.