Advanced Micro Devices, Inc. (NASDAQ:AMD) shares slipped at the start of the year, losing as much as 5.3% in the last week of 2016 and early 2017 in sympathy with rival Nvidia Corporation (NASDAQ:NVDA) stock, which tanked 13% over a similar timespan. Nvidia took a big hit after famous Wall Street short Seller Citron Research panned the company and highlighted it as a good bear play.
Nevertheless, both AMD and Nvidia performed exemplarily well in 2016. AMD stock managed to recover from a two-year slump to finish with gains of nearly 300% while NVDA stock was the best-performing stock in the S&P 500 in 2016 after tacking on gains of 224%.
AMD Stock Slugging It Out With Intel
Many investors will naturally be wondering whether AMD has enough gas left in the tank for another big rally in 2017, or whether the latest selloff marks the beginning of a major downturn.
First off, AMD’s recent slip is somewhat odd considering the issues highlighted by Citron Research are either neutral or positive for the company. Specifically Citron Research said Nvidia’s recent growth in the pivotal gaming console market has been coming at the expense of AMD and not through winning new addressable markets.
In my view that’s a positive for AMD because the company is now better positioned to compete with Nvidia than it was in the past. The company has seen its share of the discrete gaming processor market slip from 40% six years ago to around 13% currently, but could be on the cusp of turning things around.
AMD’s [in]famous battles with Intel Corporation (NASDAQ:INTC) in the x86 server market over the last decade are to blame for this sad state of affairs. For a brief moment in history, AMD managed to outmaneuver and outgun Intel in 64-bit server processors, grabbing as much as 25% market share by 2006.
But slugging it out with a company more than ten times your size is never an easy thing to do. Intel responded with a series of attacks and managed to claw back nearly everything. A battle-weary AMD was left with little cash to invest in the booming GPU market, and was unable to keep up with Nvidia in process nodes. Even worse, AMD could not compete with NVDA in the top tiers of the market, where margins are fatter.