Nowadays, Advanced Micro Devices, Inc. (NASDAQ:AMD) just doesn’t seem able to catch a proper break. AMD stock has once again suffered a double-digit loss over the past several days, crashing nearly 11% since Friday after being caught in the melee of a deadly salvo fired by hard-hitting Wall Street short-seller, Citron Research, at rival Nvidia Corporation (NASDAQ:NVDA).
Citron compared the strong gains of Nvidia stock to “frenzied casino action.”
AMD stock had surged 13% last week following the company’s claim that the bitcoin craze has been fueling strong demand for its graphics cards. According to the company, many computer hardware retailers are sold out of the RX 570 and RX 580 graphics card models, thanks to strong demand by cryptocurrency miners. The digital currency craze has helped bitcoin prices more than double year-to-date, while those of its closest peer, Ethereum, are up nearly 3,000% over the same time frame.
A cautionary note by Goldman Sachs, who on Monday warned that cryptocurrency fever is not sustainable, has not been helping Advanced Micro Devices, either.
But, bears could be looking in the wrong places for reasons to short AMD stock.
Much Ado About Nothing
Let me start by saying it straight up: Goldman is something of an AMD permabear, and will happily knock AMD stock down a peg or two, even when things are looking up for the company. In the case of Citron Research, though, AMD stock is simply a victim of a nasty sympathy selloff since Citron loves bashing Nvidia, but has never directly shot down Advanced Micro Devices.
Citron did the same thing to NVDA in December, which lead the stock to tank nearly 10%.
With AMD stock being so volatile, the bears might have a point in shorting it at every turn. After all, even a broken clock is right twice a day (though nobody’s saying the stock is broken). But, they could be doing it for all the wrong reasons.
For starters, the bears don’t seem to be showing Nintendo Co., Ltd (ADR)’s (OTCMKTS:NTDOY) red-hot gaming console, the Switch, the respect it deserves.
Maybe that’s because the Nintendo Switch was heavily criticized at launch due the lack of physical games. Or, maybe because the Switch was widely seen as Nintendo’s last roll of the dice, with the company having been reduced to a non-starter in the console world by Microsoft Corporation (NASDAQ:MSFT) and Sony Corp (ADR)’s (NYSE:SNE) devices.
Truth be told, Nintendo’s consoles have long been dead in the water since the motion-controlled Wii. Since then, NTDOY consoles have never been credible challengers to the gadgets of Sony and Microsoft, both of which are powered by Advanced Micro Devices GPU processors. The company manufacturers APUs (integrated CPU/GPUs) for Microsoft’s Xbox One and Sony’s PS4.
Fans of Xbox One and the PS4 seem to be forever embroiled in a never-ending kerfuffle for bragging rights in the console wars. But, the sales numbers suggest that this is a one-sided slugfest — PS4 is the 800-pound gorilla in the room, with lifetime sales of ~54 million units, double Xbox One’s ~27 million units. Nintendo’s Wii U is a distant third with lifetime sales of just ~13.6 million units in its nearly five-year of existence.
Tables Turn for AMD stock
AMD reports console chip sales under the Enterprise, Embedded and Semi-Custom segment. The division brought in $391 million for the company during the first quarter, nearly 40% of overall revenue.
Unfortunately for AMD investors, the Nintendo Switch is powered by Nvidia’s Tegra processors, another crucial win by NVDA over AMD.
Even worse is the fact that the tables have truly turned in the gaming world, if the runaway success by the Switch is any indication. The Switch became the No. 1 best-selling console less than a month after its March 3 launch, after moving 2.74 million units around the globe and comfortably outselling Xbox One and PS4. That crazy sales clip earned the console the distinction as one of the fastest-selling video game systems of all time.
The breakout success by the Switch has spurred widespread shortages across retail outlets, and sent Nintendo scrambling to ramp up production. The company has even forecast it will sell ~10 million Switches during the first 12 months after launch.
It’s little wonder, then, that Nintendo stock is trading at its highest level since 2008, currently sitting on an impressive 56.2% YTD gain.
Bad News for Advanced Micro Devices
It’s hard not to suspect that a sizable chunk of Xbox One and PS4 fans could jump ship and join the Switch camp. It’s even harder not to suspect that the ”Switch” moniker is a clever marketing gimmick designed by Nintendo to deliver some kind of subliminal message prompting fans to ditch their old bases. After all, the Switch sports some pretty suave features, despite not packing the same graphical punch as its older rivals.
The Nintendo Switch was actually designed as a bridge between portable gaming and TV-based gaming. The device allows you to play games on the go and provides a much better playing experience than what a standard smartphone is capable of delivering.
Essentially, NTDOY is looking to rebuild a presence in the living rooms of fans who bailed on it years ago, while providing a handheld console that’s powerful enough to keep them from going back to smartphone gaming. The console’s menu systems and user interface have all received critical acclaim from the pundits, as has the device’s VR capability, something that’s doubtful even for Microsoft’s latest Project Scorpio. Oh, and the games catalog looks a lot healthier now, with some blockbusters such as Breath of the Wild and Legend of Zelda.
Selling at £279 (£80 more than the Xbox One or PS4), the Switch might still prove a tough sell over the long-term. But, the writing’s already on the wall: Nintendo’s days of playing in the minor leagues of the console world are over. And, that could ultimately prove to be a bad thing for AMD stock.
Hint: I still believe it’s a bad idea to short AMD stock. After all, the cryptocurrency craze might be here to stay. Bitcoin has become extremely volatile, but keeps taking out new highs every now and then. This proves that investor interest in the leading digital currency remains strong. AMD graphic cards have traditionally been preferred over Nvidia’s for bitcoin mining, and that might make all the difference for the company, regardless of whether the Switch delivers a sucker punch or not.
As of this writing, Brian Wu did not hold a position in any of the aforementioned securities.
