This Could Be Massive for AMD Stock
Chipmakers might not be the hottest companies in tech, but Advanced Micro Devices, Inc. (NASDAQ:AMD) stock turned out to be one of the biggest winners this year. In the past six months, AMD stock soared a staggering 212%!
With such a dramatic rise, you might wonder if AMD stock is going to hold steady at today’s level. Well, given what the company could do in the upcoming quarters, AMD stock could not only sustain these levels, but also see further upside.
Let me explain…
The company’s “Polaris” architecture-based graphics cards were one of the catalysts behind AMD stock’s dramatic increase. In particular, AMD’s “Radeon RX” series graphics cards could help the company get back to the center stage of the computer industry.
The idea is simple: AMD’s RX series graphics cards start at just $199.00, while most of its competitors’ products cost double that price. Moreover, reviews of AMD’s budget graphics processing units (GPUs) suggest that they felt “just as fluid” as NVIDIA Corporation’s (NASDAQ:NVDA) “GTX 1080” when playing video games. (Source: “AMD’s Radeon RX 480 Is the New King of Budget Video Cards,” Engadget, June 29, 2016.)
These graphics cards are also capable of powering virtual reality-ready (VR-ready) computers, which are needed when you use many of the VR headsets on the market today. Because of its competitive pricing on these chips, AMD might be able to expand its total addressable market with VR products.
AMD’s first Polaris graphics card, the “RX 480,” was only launched in late June and it’s already playing a big role in the company’s sales. During last month’s earnings conference call, AMD’s chief executive officer, Lisa Su, said that the RX 480 GPUs helped contribute to the company’s highest desktop channel GPU shipments since the fourth quarter of 2014. (Source: “Advanced Micro Devices Lisa T. Su on Q2 2016 Results – Earnings Call Transcript,” Seeking Alpha, July 21, 2016.)
Note that the RX 480 chips are just the start. In the third quarter, AMD is scheduled to launch the “RX 470” and “RX 460” desktop GPUs. The company’s original equipment manufacturer (OEM) customers are also expected to bring out Polaris-based notebooks.
With these points in mind, it looks like AMD is well on its way to take back some market share in the graphics card business.
Other than the GPU business, AMD also has plans to make a comeback in the central processing unit (CPU) market. The key to that is “Zen”—AMD’s codename for the company’s upcoming 14-nanometre CPU microarchitecture. With Zen, AMD isn’t just going after the PC market; it’s going after the server market as well.
The technology was demonstrated at a computer expo in June and some server customers have already started testing it. Company CEO Lisa Su said last month, “We are pleased with the performance we are seeing with Zen hardware, which is helping to expand our customer engagements and accelerating design win momentum across multiple OEMs and ODMs.” (Source: Ibid.)
When will Zen products become available? Well, Zen PC CPUs could hit the market as early as the end of this year, while volume shipments of Zen server CPUs are expected to start in the first half of 2017.
At the end of the day, keep in mind that for such a dramatic rise in AMD stock to be sustainable, financials have to improve at some point. The good news is that the improvement is already happening.
In the second quarter of 2016, the company generated $1.03 billion in revenue, up nine percent year-over-year, beating Wall Street’s expectations of $955.1 million. Second-quarter revenue also represented a 23% sequential improvement. (Source: “AMD Reports 2016 Second Quarter Results,” Advanced Micro Devices, Inc., July 21, 2016.)
The bottom line was the real surprise. In the second quarter of last year, AMD had a net loss of $181 million, or $0.23 per share. This time, it reported net earnings of $69.0 million, or $0.08 per share. Analysts had projected a net loss of $0.10 per share.
The Bottom Line on AMD Stock
Of course, AMD’s massive improvement in net income was partly due to a gain of $150 million related to the formation of a joint venture with Nantong Fujitsu Microelectronics Co. Ltd. Still, on an adjusted basis, the company generated operating income of $3.0 million.
Returning to non-GAAP operating profitability is a big deal for AMD stock. Going forward, the company expects third-quarter revenue to grow 18% sequentially, plus or minus three percent, which is well above analysts’ projections of 9.5% sequential growth.
With so many exciting product launches coming up, if the chipmaker can deliver its projected sales growth while maintaining operating profitability, AMD stock could see its rally continue.