Advanced Micro Devices, Inc. (AMD) Stock Is a Darling. Now Sell It

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If you have been following my coverage of Advanced Micro Devices, Inc. (NASDAQ:AMD) since it made Lisa Su its CEO in October, 2014 you have done very well for yourself in AMD stock.

Advanced Micro Devices, Inc. (AMD) Stock Is a Darling. Now Sell It

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Dr. Su was given a clear roadmap by her predecessor, Rory Read, and she has executed on it flawlessly. She took job cuts and an inventory write-down, then took off on the strength of Radeon graphics and Ryzen processing chips.

This was a $2 stock in January of 2016. It opened at $14.40 today, but took a 3.7% haircut as the broader market drops under pressure. Since the last time I wrote about AMD stock in December, it is up 30%-plus. Everyone likes AMD. They love its niche in gaming, and analysts are pounding the table for the stock, raising their price targets. 

What should the savvy investor do now? Why, sell of course.

AMD Stock Is Not Intel

I have covered AMD for almost four decades — from back when it was the Jerry Sanders show — and the company has had a boom-and-bust pattern since before I got here.

AMD will appear to be at death’s door, then pull some new products out of its hat and appear to be competitive again with Intel Corporation (NASDAQ:INTC). But AMD is not Intel. Intel is 10 times bigger by market capitalization and 16 times bigger by revenue. Intel moves slowly, but it moves. And when it gets around to it, Intel always slaps AMD back down. Hard.

AMD’s key advantage over Intel remains what it was in Sanders’ day. Price. Ryzen chips are much cheaper than their Intel competitors. They’re not faster, and not better than Intel’s Kaby Lake silicon, they’re just less expensive.

This is always AMD’s modus operandi. Right about now, when analysts are predicting AMD will soon have better performance than its larger rival, Intel always has the same response: It moves to a new generation, it drops the prices on the old inventory, and it blows AMD out of the water.

It’s as predictable as the mouse and the cat.

AMD’s Weaknesses

AMD now has a market cap of $13.96 billion, which represents more than three times revenue. We are not going to talk about earnings because AMD doesn’t have any this cycle, having just hit near breakeven last quarter.

Meanwhile, boring ol’ Intel keeps bringing 25% of its revenue to the net income line, the balance sheet shows $17 billion in cash and $20 billion in long-term debt, and operating cash flow skyrocketed last year to $21.8 billion. You can get it today for a below-market price-earnings ratio of 16.25. Oh, and analysts are telling you to sell it.

Instead, they want you to buy a company with $1.425 billion in debt on $3.321 billion in assets, with operating cash flow last year of $90 million, which had about 15% less revenue for its December quarter than in September.

A Jefferies analyst who is pounding the table for AMD predicts it will get $4.6 billion in new revenue from Ryzen and put out a “buy” rating on the stock. His price target is $16. That’s less than $1.50 per share above where AMD opened today.

Bottom Line on AMD Stock

AMD can move fast against Intel, but it must bet the company to do so, and it can’t make more than one major architectural move every half decade. AMD has now made that move, and its new product announcements are evolutionary, part of the path it has set, not a revolution.

Some of AMD’s businesses are already slowing down and now, after telling you to buy low, this AMD bull is telling you to sell high.

Dana Blankenhorn is a financial and technology journalist. He is the author of the sci-fi novella Into the Cloud, available at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing he owned shares in INTC.

Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, available at the Amazon Kindle store. Tweet him at @danablankenhorn, connect with him on Mastodon or subscribe to his Substack.


Article printed from InvestorPlace Media, https://investorplace.com/2017/03/amd-stock-is-a-darling-now-sell-it/.

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