Here’s Why AMD Stock Skyrocketed
When a company is losing the battle in its industry, its stock price usually goes down. Not for Advanced Micro Devices, Inc. (NASDAQ:AMD) though. Despite not being the market leader, AMD stock has more than doubled in the past three months.
The question now is this: where is AMD stock going next?
AMD’s products fall into a very interesting category. While also selling chips to consumers, many of its products are not directly sold to end-users. Instead, they are put into computers that are then delivered to consumers. However, when consumers decide on which computer to buy, they often look at what kind of processor and graphics card is in it. So in a way, end-users’ preferences do play a role in determining the popularity of AMD’s products.
The way consumers make decisions is simple—they want good performance and a good price. If Intel Corporation (NASDAQ:INTC) or NVIDIA Corporation (NASDAQ:NVDA) offer chips that offer better performance at a lower price, their products would outsell AMD’s.
Unfortunately, that might have been the case in the past several years. AMD has lost quite a bit of market share to Nvidia in the graphics processing unit (GPU) business. At the same time, Intel kept its throne as the go-to choice when it comes to central processing units (CPUs).
When a company is losing its business to competitors, its stock usually gets punished. AMD shares never really climbed back upward since the financial crisis. Even after its giant surge in the past few months, AMD stock is still down more than 57% since five years ago.
The main point is that despite falling behind in market share, the company is far from over. Right now, AMD could be in a position to make a strong comeback.
First up is the company’s PC processors. While Intel has been the go-to choice for those who want a powerful CPU, AMD might be able to change the industry landscape with its new offerings.
In March, AMD introduced two new processors: “AMD A10-7890K” and “AMD Athlon X4 880K.” These chips boast super-fast performances, with the promise to be more energy-efficient and run almost silently. (Source: “AMD Enhances Its Desktop Processor Line Up With New A10-7890K and AthlonX4 880K Processors, Delivering Superior Performance, Features, and Near-Silent Operation,” Advanced Micro Devices, Inc. Investor Relations, March 1, 2016.)
In particular, the A10-7890K processor is the company’s fastest chip with integrated graphics. It has four CPU cores and eight “Radeon R7 GPU” cores. It is based on the Godavari architecture and has a horsepower of 1.02 teraflops. (Source: “AMD’s New A10-7890K Is Its Fastest-Ever Desktop Chip with an Integrated GPU,” PC World, March 1, 2016.)
For such impressive performance, you’d expect it to be expensive. The A10-7890K processor retails for $165.00. While that’s not really cheap, it does offer users an opportunity to build gaming desktops for less than $500.00.
The company could also benefit from one of the hottest fields in tech today—virtual reality (VR). While companies like Facebook Inc. (NASDAQ:FB) seem to be getting all the attention from developing VR headsets, don’t forget that chipmakers are also a beneficiary. AMD is enjoying a head start through partnerships on the “Oculus Rift” and “HTC Vive PRE.” In March, AMD announced that it had an 83% market share in home entertainment VR systems. (Source: “AMD Takes 83% Share of Global VR System Market, Driving Leading VR Experiences for Consumers and Developers,” Advanced Micro Devices, Inc. Investor Relations, March 14, 2016.)
Most recently, Wells Fargo & Co (NYSE:WFC) analyst David Wong commented that at the current pace, AMD could gain back some lost market share from its biggest rival in the graphics card business. He said, “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: “AMD Taking GPU Share from Nvidia, Says Wells; All Eyes on ‘Polaris’,” Barron’s, May 12, 2016.)
The Bottom Line on AMD Stock
Before jumping on the bull wagon, keep in mind that after such a huge surge, there could be some pullback in AMD stock. However, based on what the company is doing right now, AMD still has a chance at winning back some market share, as well as some investor appeal.