Advanced Micro Devices, Inc.: A Bargain-Basement VR Play (AMD)

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AMD stock - Advanced Micro Devices, Inc.: A Bargain-Basement VR Play (AMD)

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Back in mid-March, I wrote a post about Advanced Micro Devices, Inc. (AMD), noting that the company could get a boost from its efforts with virtual reality. And yes, the timing turned out to be pretty good. Since my post, AMD stock has logged a gain of nearly 60%.

Advanced Micro Devices, Inc.: A Bargain-Basement VR Play (AMD)But of course, in today’s trading, things are not so rosy. AMD stock is off about 5% to $4.20.

OK, so what’s going on here? Well, the main reason for the drop is the pricing on the new VR chips (which are focused on graphics capabilities of PCs).

Consider that the initial price will be at a mere $199, which compares to $399 for similar chips from rivals. As a result, Wall Street is now concerned that margins will be compressed — if not nonexistent.

It’s All About The Long Term

Granted, AMD has had a long history of missteps and problems with execution. Yet, it does look like the new pricing strategy is a smart move, especially for the long haul.

VR is still in the early phases and AMD has an opportunity to get a big piece of the market, which can allow for the technology to become a standard. Besides, according to a survey from the Advanced Imaging Society, consumers believe that VR systems are still overpriced.

Oh, and the worries about margins may be overblown.  Keep in mind that — this week — AMD CEO Lisa Su said that her company will achieve operating profits in the second half of this year. The main reason is that revenues are likely to be robust.

No doubt, this would be a major reversal, as AMD suffered a 19% plunge in sales in the latest quarter and a net loss of $109 million.

Advanced Micro Devices is showing some strength with its efforts in China, as well as its moves into the data-center business. Yet, the real play for investors is still virtual reality.

In terms of the market opportunity, it is enormous. According to a report from Piper Jaffray, the number of shipments of devices is predicted to soar from 12 million in 2016 to a whopping 500 million by 2025.

Already many top tech operators are aggressively making moves, such as Facebook Inc (FB), Alphabet Inc (GOOG, GOOGL), Microsoft Corporation (MSFT), Samsung (SSNLF), Sony Corp (ADR) (SNE), HTC and GoPro Inc (GPRO).

And while the focus will likely be on the gaming market, VR has the potential for transforming many other categories, such education, medicine, movies and so on. As Facebook CEO Mark Zuckerberg recently noted: “VR has the potential to change the way that we live, work and communicate …”

Bottom Line on AMD Stock

As for AMD stock, there are still lots of risks. Let’s face it, the core PC business continues to decline and the competitive environment remains intense.

But then again, even with the recent run up in AMD stock, the valuation is still fairly low.

Consider that shares trade under sales. By comparison, Nvidia Corporation (NVDA) trades at 4.8 times sales and Intel Corporation (INTC) has a multiple of 2.7.

In other words, for investors looking to snag a value play on virtual reality, AMD stock looks like a pretty good choice.

Tom Taulli runs the InvestorPlace blog IPO Playbook. He is also the author of High-Profit IPO StrategiesAll 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.

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Tom Taulli is the author of various books. They include Artificial Intelligence Basics and the Robotic Process Automation Handbook. His upcoming book is called Generative AI: How ChatGPT and other AI Tools Will Revolutionize Business.


Article printed from InvestorPlace Media, https://investorplace.com/2016/06/amd-stock-advanced-micro-devices-vr-virtual-reality/.

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