After a 150%-plus gain this year, Advanced Micro Devices, Inc. (NASDAQ:AMD) has hit a speed bump. The reason: management has taken swift action to capitalize on the opportunity by issuing a hefty $1.02 billion in stock and debt, which could result in as much as a 10% increase in new shares outstanding. As of this writing, AMD stock is off about 5.9% on the news.
OK then, should investors be worried? Or is there still opportunity for AMD stock?
Well, first of all, management is certainly being prudent. The capital raise will bolster the balance sheet and also provide much more firepower to help with its aggressive investments in high-growth market opportunities, especially virtual reality.
But then again, AMD stock is not just about making a wager on long-term opportunities. The core PC processor business also looks promising.
AMD Stock: A High-Speed Opportunity
In the first half of next year, AMD plans to launch its line of Zen microprocessors, which will have the kind of functionality that should compete against its long-time nemesis, Intel Corporation (NASDAQ:INTC). The focus will likely be on getting a bigger chunk of the massive market for the datacenter. Let’s face it, the tech world continues to increasingly move toward cloud solutions.
And as for AMD, it has an opportunity to provide high-speed chips at affordable price points — which should be attractive to major operators like Facebook Inc (NASDAQ:FB), Alphabet Inc (NASDAQ:GOOG, NASDAQ:GOOGL) and salesforce.com, inc. (NYSE:CRM).
But in the meantime, there should be a nice boost from the upcoming holiday season. Perhaps the biggest catalyst will come from a deal with Microsoft Corporation (NASDAQ:MSFT), which recently launched the Xbox One S and plans to launch a more powerful console next fall — Project Scorpio.
Already, the financials of AMD are perking up. In the latest quarter, revenues rose by 9% to $1.03 billion — which was the first increase in about two years — and a profit of $69 million. Although, the current quarter is expected to see a jump in revenues of 15% to 21%.
Virtual Reality Could Be Huge for AMD
As for the VR opportunity, it’s tough to gauge. But the company’s low-cost, high-volume approach appears to be spot-on. After all, Advanced Micro Devices has a chance to define the standards of an emerging industry — and this could be a springboard for long-term revenue growth.
More importantly, the category could be 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.
In light of this, many top tech operators are gunning for the market. Just some include Facebook, Alphabet, Microsoft, Samsung (OTCMKTS:SSNLF), Sony Corp (ADR) (NYSE:SNE), HTC and GoPro Inc (NASDAQ:GPRO).
Again, AMD stock has already discounted some of this. But the valuation still remains attractive, with shares at about 1.4 time revenues. By comparison, INTC trades at three times its sales and Qualcomm, Inc. (NASDAQ:QCOM) trades hands at about four times sales.
So given that there are multiple potential catalysts for AMD — such as with the datacenter, graphics chips and VR — AMD stock still looks like a good play at current levels.
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.
