The Crash in AMD Stock Could Be an Opportunity
AMD Stock Likely to Recover on Product Strengths
Advanced Micro Devices, Inc. (NASDAQ:AMD) stock plunged by seven percent on Thursday, following mixed reviews of its latest “Ryzen 7” processor. AMD stock closed at $13.90, and is likely to trade on a subdued level in the short term.
The new “Ryzen 7” family of desktop central processing units (CPUs) that AMD launched last week generated a lot of excitement. However, a few unfavorable reviews have pulled AMD stock down. The Ryzen 7 lineup that was launched last week was reviewed by Ars Technica, which expressed disappointment with its gaming performance. (Source: “AMD Ryzen 7 1800X still behind Intel, but it’s great for the price,” Ars Technica, March 2, 2017.)
However, the review stated that the “AMD Ryzen 7 1800x” is great for the price and is an excellent workstation CPU. “Ryzen puts an end to Intel’s monopoly on high-performance computing, and – most importantly for consumers – the price gouging that went along with it,” wrote Ars Technica. It is clear from the review that the value proposition of the Ryzen 7 is very strong.
In a more detailed review of AMD Ryzen 7 on Tom’s Hardware, the writer agrees that the Ryzen processor is competitive in many application areas, and that the price/performance ratio makes it a good choice for commercial applications. (Source: “AMD Ryzen 7 1800X CPU Review,” Tom’s Hardware, March 2, 2017.)
AMD stock has performed well over the last 12 months, with the stock gaining almost 572% on account of the high adoption of its computing and graphics products. The following stock chart shows the stellar rise of Advanced Micro Devices stock.
Chart courtesy of StockCharts.com
At the recent 2017 Game Developers Conference, AMD announced a multi-title strategic partnership with Bethesda Softworks LLC. The objective is to rapidly advance game technology development and to enhance the overall PC gaming experience. (Source: “AMD and Bethesda Softworks Partner to Propel PC Gaming Forward,” Advanced Micro Devices, Inc., February 28, 2017.)
This would help AMD in being a significant player in the evolving gaming landscape and help AMD stock in the long run. This partnership will likely have a positive impact on the demand for AMD’s CPUs and graphics processing units (GPUs).
Improving Financial Health to Help AMD Stock
Advanced Micro Devices had announced its fourth-quarter and annual financial results on the last day of January, and AMD stock has not looked back since. The stock price jumped over 16% and had been going strong until it plunged on Thursday. Investors were pleased with how the company was positioning itself to tap future opportunities. (Source: “AMD Reports Fourth Quarter and Annual 2016 Financial Results,” Advanced Micro Devices, Inc., January 31, 2017.)
The computing and graphics segment revenue increased by 28% year-over-year and 27% sequentially. The year-over-year increase was primarily driven by higher GPU sales. The sequential increase was primarily due to higher GPU and client processor sales.
AMD had also introduced the preliminary details of its forthcoming “Vega GPU” architecture designed to handle the most data and visually-intensive next-generation workloads. Up until last year, AMD was operating in the low-end CPU and GPU markets, but the company hopes to improve its margins this year by targeting the high-end market with its Ryzen CPUs and Vega GPUs, which is expected to be good news for AMD stock.
The reaction to the Ryzen 7 reviews seems to be overdone, and AMD will likely continue to impress with its new products lined up for the year. In 2016, AMD enhanced its financial position, and the company looks forward to improving its gross margin over the long term.
Dr. Lisa Sue, president and CEO of AMD, said that the company is currently “well positioned and on-track to deliver its strongest set of high-performance computing and graphics products in more than a decade.” (Source: Ibid.)
If this is true, this will keep AMD stock in the limelight.
The current fall in the share price is an indication of the high expectations that investors had from Ryzen 7 but, once the dust settles, AMD stock will find itself on firm footing again.
As more reviews come in for the Ryzen CPU and new products are launched, like the Vega GPU in May and the “Naples CPU” in June 2017, things will take a turn for the better. It is a wait-and-watch situation right now but, in the long run, the transformation at AMD is likely to bear fruit and boost AMD stock.
