There is nothing more painful for investors than watching a stock that once traded at $1.81 soaring six-fold in the last year. The higher shares of Advanced Micro Devices, Inc. (NASDAQ:AMD) goes, the riskier it gets for investors. AMD stock still has $1.44 billion in debt against $1.26 billion in cash and equivalents. In early March, the chip supplier is about to make its biggest launch its his history with Ryzen, and that’s bound to make a lot of noise.
For the time being, details of AMD’s Ryzen are limited. Although the company recently demoed the chip in a gameplay demonstration, it gave no details on the chip’s pricing.
Without knowing what Ryzen offers at a price-to-performance ratio compared to Intel Corporation (NASDAQ:INTC), the harder it is to predict Ryzen’s sales when it launches.
AMD’s (Leaked) Ryzen Roadmap
If the leaked rumors are true, AMD will launch three classes of PC chips: high-range, medium-range and entry-level. Denoted R7 (8 core, 16 threads), R5 (4-6 core, 8-12 threads) and R3 (4 core, 4 threads), respectively, the CPUs will differ by core, thread and clock speed. The mid- and high-range chips will compete with Intel’s mainstream processors, the i5 and i7.
Ryzen’s processor speed does not aim to out-clock that of Intel chips. Rather, AMD’s strategy primarily targets the enthusiast PC game community. Ryzen will pair with the next-generation GPU (graphics processing unit) Vega chips.
After Ryzen’s launch in March, AMD will release Vega sometime in the second quarter. Mentions of Ryzen picked up again on Feb 9.
Ryzen’s Processor Size
Although Advanced Micro Devices is manufacturing Zen on 14nm, its an area of 44 square millimeters implies that the chip will at least match or beat Intel’s chips. Before Lisa Su’s leadership, AMD did not talk about manufacturing at 14nm.
Prior to Ryzen, Advanced Micro Devices embraced x86 chips at 28nm. The engineering achievement will lead to lower manufacturing costs and higher profit margins for AMD stock. On its conference call, the company revealed that it aimed to achieve gross margin of around 33% in the first quarter. In the quarters before that, its gross margin hovered in the 31%-range due to the product mix. With Ryzen on the list, expect that profitability number to improve quarter after quarter.
Manufacturing of the processor will only get better and go all the way down to 7nm:
“They are not just buying a point product and we have a multi-generational roadmap that we are working on, including sort of the Zen 2 and the Zen 3 follow on. From our standpoint process technology, we ramped 16nm and 14nm really well last year and into this year. We are actually in the process of developing now in 7nm and we think the 7nm foundry roadmaps that are available are very competitive and will ensure that we have a strong multi-generational roadmap.”
AMD stock’s valuations may scare investors ahead of the Ryzen launch. But since the Polaris GPU launch last year, CEO Lisa Su proved her technical skills in leading product launches. Advanced Micro Devices gained market share when it priced Polaris competitively against Nvidia Corporation’s (NASDAQ:NVDA) more expensive GTX cards.
Chances are good that AMD will price Ryzen to win market share from Intel. The i5 and i7 Kaby Lake processors did not win rave reviews from the technology community.
Bottom Line for AMD Stock
Advanced Micro Devices is hovering at near yearly highs, while Intel stock is showing a “double top” at around $38 a share. The marketplace is right in embracing Ryzen’s release next month. Its chip performance, lower energy consumption compared to past chips and, hopefully, a competitive price could lift the AMD stock price to at least $15 a share. That implies a forward price-to-earnings ratio of around 50, compared to 43 with Nvidia.
As of this writing, Chris Lau did not hold a position in any of the aforementioned securities.
