When it comes to Advanced Micro Devices, Inc. (AMD), the word that’s almost never heard is “cool” … but things may be changing. Keep in mind that AMD has launched an interesting offering of technologies for the red-hot space of virtual reality, or VR.
Now, it’s true that there should be some caution. Let’s face it, AMD stock has been mostly a horrible experience for investors. During the past five years, the return is a -71%.
But lately, AMD stock has been showing some signs of life. Since mid-February, the gain is a sizzling 36%.
Part of the reason is that AMD stock was way oversold. And yes, there was a boost from the overall rally in the markets.
The Cool Part of AMD
But the VR part of the story is likely a major factor for some of the renewed optimism for AMD stock.
For example, the company has launched a platform, called Radeon Pro Duo, which allows the creation and consumption of VR content, whether for education, medicine, journalism or movies. The system has 16 teraflops of computing power and the cost is $1,499 per unit.
And yes, the timing seems spot on. The fact is that VR is getting tons of buzz as the mighty Facebook Inc (FB) is revving up the launch of its Oculus Rift. But there are other players moving aggressively into the category, like Alphabet Inc (GOOG, GOOGL), Microsoft Corporation (MSFT), Samsung (SSNLF), Sony Corp (ADR) (SNE), HTC and GoPro Inc (GPRO).
In other words, expect a tidal wave of PR and marketing.
But given all this, there should be a nice bump up in demand for affordable, graphics-intensive semiconductors — which is definitely a sweet-spot for AMD.
In fact, the company has 83% of the market share for home entertainment VR systems. A key part of this is the dominance with game consoles, although, it’s a good bet that AMD will get a nice piece of the market outside of this. After all, the company has partnerships with FB and HTC.
Oh, and there are even deals with major industrial operators like General Electric Company (GE).
Bottom Line on AMD Stock
Now, the VR opportunity may not necessarily be a panacea for AMD stock. The fact is that the company continues to be challenged, as it has posted five consecutive quarters of revenues declines of more than 20%. It’s definitely tough to compete against players like Intel Corporation (INTC) and Nvidia Corporation (NVDA). At the same time, AMD continues to feel the pain from falling PC sales.
Yet VR could offset some of the problems. More importantly, the long-term potential could be particularly bright for AMD, allowing for a return to growth.
While it’s tough to gauge the market opportunity, there are plenty of analysts who are projecting multibillion-dollar revenue ramps. For example, Goldman Sachs Group Inc (GS) is forecasting that VR will hit $80 billion by 2025 … although, it could be as much as $182 billion if there is broad-based adoption.
So while AMD stock is risky and downright speculative, there is still a reasonable scenario that could mean some nice gains — gains that last.
Tom Taulli runs the InvestorPlace blog IPO Playbook. He is also the author of High-Profit IPO Strategies, All About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.
