To say last week was a tough one for owners of Advanced Micro Devices, Inc. (NASDAQ:AMD) would be a considerable understatement. It was an awful week, with AMD stock giving up nearly 15% of its value since the prior Monday’s close.
The setback was spurred by news that the company’s new ballyhooed Ryzen processor wasn’t all it was supposed to be. That is to say, it didn’t operate as well as it was expected to, particularly for gamers, who make up a key piece of the struggling PC market.
Is this a much-deserved selloff, or does the market just not understand what the Ryzen was supposed to be for AMD? It’s a little of both. At the end of the day though, the future for Advanced Micro Devices still looks much better than its past.
Advanced Micro Devices’ Ryzen Disappoints, But …
Although it wasn’t alone in its disappointment, it was largely all-things-computer website Ars Technica that did the bulk of the damage to AMD stock last week, when reviewer Mark Walton opined “The [Ryzen] 1800X lags behind its Intel counterparts in gaming, regardless of whether it’s running at the same clock speed or higher.”
PCWorld and PC Gamer were also unenthused, saying games didn’t play as well on the hardware as had been hoped.
Those tests, however, weren’t entirely fair.
Chief among the important footnotes is that the games being used to perform those trials weren’t likely optimized to operate on the new Ryzen CPU.
It’s an overlooked nuance of the PC gaming market, but that software is designed to run on a specific set of hardware (or several different configurations of hardware). As AMD CEO Lisa Su recently explained, “What we’re doing with the high-end is putting an 8-core processor out there, where today most games use only 4 cores. So, there’s some software tuning that needs to be done.”
Even then, though, owners of AMD stock may not be correctly assessing the situation.
The Rest of the AMD Story
While Ryzen may have missed the mark, it was a tainted trial. Aside from the lack of games being written specifically with the Ryzen’s new architecture in mind, the new CPU is only one part of a one-two punch combination Advanced Micro Devices has been developing for quite some time now.
The second half of that combination is the new graphics-processing unit called Vega. As I explained back on Jan. 12:
“The Vega platform employs a whole new kind of thinking about the way a machine handles all the video-based demands put on it. Its second-generation high bandwidth memory (or HBM2) is a stacked memory architecture that performs significantly better than the more common GDDR5 (double data rate type-five) utilized by most graphics-processing units today. This arrangement allows for a so-called High Bandwidth Cache and High Bandwidth Controller, which effectively offloads the memory work usually performed by a graphics card to that computer’s — the motherboard’s — memory. This means a practically infinite amount of memory can be dedicated to handling the display. The maximum virtualization is capped at a ridiculous 512 terabytes.”
It matters, because Vega and Ryzen work very well together.
It’s also worth noting that not all of the recent tests of Ryzen were done using a motherboard that favors Ryzen. Future boards will be built from the ground up for both the new CPU and the new GPU.
Bottom Line for AMD Stock
Yes, AMD stock deserved to pull back last week. In fact, after rallying more than 700% between February of last year and February of this year, there’s more downside left to dish out … but that’s not because Advanced Micro Devices isn’t going to do well with Ryzen and Vega.
The reason AMD stock is poised to pull back quite a bit more is simply because the bulls got ahead of themselves, expecting Ryzen to hit the ground running without the PC industry needing to make any adjustment. With the potential revenue driven by the new hardware not likely to reach a critical mass until the second half of this year, shocked investors immediately chose to play defense. They’ll likely keep doing so until the new components start contributing measurable revenue. I’ll reiterate my comments made back on Dec. 21:
“Although a turnaround is in the works, there’s still no denying AMD stock is overextended and ripe for a pullback. The market got a little overzealous about the timing of when the gradual rollout of Ryzen might actually start to legitimately help the bottom line. Don’t be shocked when investors come back to earth, and bring the stock with it.
On the flipside, don’t forget to use that pullback as a buying opportunity. Advanced Micro Devices is sitting on the most marketable product it has had in years.”
In other words (and once again), timing is everything. AMD is still mounting a successful comeback. It’s just not going to happen overnight, and that’s OK.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.
