The Sky Could Be the Limit for This Chip Maker
Today’s company highlights one of my favorite methods of picking top technology stocks. A great strategy that has the potential to offer huge returns in emerging sectors is going for the picks-and-shovels play. This means that investors reap stellar rewards by owning stocks of companies that supply critical components to the players that are most likely to gain from new technology trends.
Such stocks have the potential to deliver more than 100% in the span of a few years. Companies like these may not make it to the headlines often, but they keep on investing and sharpening their competitive edges.
A case in point is Advanced Micro Devices, Inc. (NASDAQ:AMD). It’s a global semiconductor company that makes the brains for computers and designs the graphics cards that are so coveted by gaming enthusiasts, among other products whose demand is just going to keep on rising in the coming decade. This is because, as our world and devices get more connected, we need more and more chips with higher computing powers to keep us efficient, as well as entertained.
Owning AMD stock could be one way to grow in such a future. Here are the reasons that make AMD one of my top investment ideas.
First, the company is in the perfect position to take advantage of the growing gaming market that demands higher performance and speed. AMD launched its “Ryzen” series of processors in the first quarter, and they were received with good reviews. This new line of products used by gamers on personal computers is likely to impact the market share of Intel Corporation (NASDAQ:INTC), which offers similar products at a higher price point.
AMD has already got people excited by its “Radeon” graphics card. In the second quarter, AMD is set to enter the high-end graphics market with its “Vega” GPU, and will compete directly with the dominating player NVIDIA Corporation (NASDAQ:NVDA).
Only time can tell how the market receives these new products but, even if AMD is able to earn decent gains in the market for graphics chips on the back of their high performance and low costs, it could translate into big gains for the company and, therefore, for AMD stock.
The global gaming market touched $101.1 billion last year, and is set to get bigger in the coming years. With 2.2 billion gamers around the world, gaming revenues of about $108.9 billion are expected this year. The market is expected to grow at over six percent through 2020. (Source: “The Global Games Market Will Reach $108.9 Billion in 2017 With Mobile Taking 42%,” Newzoo, April 20, 2017.)
Moreover, AMD has been betting big on the virtual reality (VR) market. Just last month, it acquired the team and technology of the wireless chip maker Nitero, Inc. The startup is one of the few companies in the world that can supply technologies for wireless VR. Through the acquisition of Nitero’s intellectual property (IP), AMD is preparing itself to lead the upcoming VR future of the gaming industry.
Already, there are high expectations from the next-generation gaming consoles like Microsoft Corporation’s (NASDAQ:MSFT) “Project Scorpio” that is arriving this year, and has an AMD processor.
Advanced Micro Devices stock has notched up gains of almost 284% over the last year. The company has an impressive lineup of products hitting the market in the next few months, its financials are improving, and it is strengthening its position in the gaming industry. These catalysts could send AMD stock soaring over the coming years.
Chart courtesy of StockCharts.com
The chip maker announced its first-quarter results on Monday, and they have lived up to the consensus estimates. AMD has provided impressive guidance as well, but AMD stock has taken a beating. However, this volatility was expected, as investor expectations have been gaining of late, with the launch of new products by the company. Investors should focus more about how the management team is executing its vision, and the fact that the demand for Ryzen processors has been strong.
The company has been quite aggressive in going after high growth, and it appears to be quite focused, which makes a strong case for looking at it closely. A fall in AMD stock will be a good opportunity for investors keen on riding the new wave of computing and seeing their investment go up by triple-digits.