News that Polaris graphics cards are selling out, due to bitcoin mining, is giving shares of Advanced Micro Devices, Inc. (NASDAQ:AMD) a boost on the markets. But investors forget that the computing power for cryptocurrency mining will eventually reach an equilibrium.
The more money it makes, the sooner companies like AMD and Nvidia Corporation (NASDAQ:NVDA) will start selling cheaper GPUs for bitcoin mining.
While that could be bad news for AMD, the company’s prospects in its other markets are getting better. Ryzen’s launch may look slow, but it is steady and decisive.
To date, AMD has launched seven versions of the Ryzen CPU chip. Each version is highly competitive to those available from Intel Corporation (NASDAQ:INTC). AMD is pricing the chips close to that of its competitor. Yet Ryzen’s selling point is the 30%–70% performance advantage over a comparable Intel chip.
AMD’s one-two punch comes from the launch of Vega, a high-end graphics card. This will push AMD’s ASP (average selling price) higher. As sales ramp up, the higher revenue should lead to higher profit margin.
Even though AMD’s stock rallied sharply already, the stock might be getting ahead of itself. Profits will not grow right away. Expect a modest number of unit sales at launch time and in the months ahead. Game and application developers need time to optimize the software code that takes advantage of the many cores and threads that AMD Ryzens have. Until then, Intel could still hold the performance lead for single-threaded applications.
AMD Stock’s Ryzen Desktops, Ryzen Mobile
The top five PC OEMs, which include Lenovo, Dell Computer, HP Inc (NYSE:HPQ) and Asus, will all build desktops powered by Ryzen chips. The rollout to commercial customers is a bigger development for AMD. That happens in the second half of 2017.
AMD stock may have more positive momentum ahead, but fundamentally, shares are baking in future revenue that has not yet arrived.
The higher profitability and ASP for laptops and notebooks suggest that Ryzen mobile will add more meaningfully to AMD’s bottom line. These types of computers traditionally sell at higher prices and fetch more revenue for suppliers. AMD will combine its Zen core with the Vega graphic core.
Stating the obvious, the more AMD parts involved, the more revenue it gets from sales.
Investors should note the timeframe for Ryzen mobile. AMD is launching the product in phases, over the course of the next six to 12 months. This may be slow, but it is steady and decisive. The solid technology, price, and performance should all give the company a technical advantage over its competitor. Expect AMD gaining market share in the notebook market, too.
AMD is confident the graphics component of Ryzen mobile will have better graphics performance than the Intel integrated GPU part. When office computer systems need good GPU performance at a low-cost, AMD should have an edge.
Next Up for Advanced Micro Devices: HEDT
Ryzen 3 covers the budget PC market, while Ryzen 5 covers the mainstream and Ryzen 7, the high-end. The Threadripper CPU, made for the HEDT (high-end desktop) market, will most certainly lift AMD’s overall ASP. But the market is relatively small compared to the mainstream market.
Despite investors expecting limited sales, any reports of Threadripper beating Intel’s HEDT chip offerings will help AMD. It might help lift sales for the Ryzen CPUs.
AMD’s fundamentals are getting better each passing quarter. Investors may demand a faster pace of the Ryzen release schedule. They may want faster sales growth, too, but this will only accelerate over time. Ryzen needs to prove its performance is worth the price for consumers.
As of this writing, Chris Lau did not hold a position in any of the aforementioned securities.
