On Lisa Su’s first earnings call as CEO of Advanced Micro Devices, Inc. (NASDAQ:AMD), back when AMD stock was languishing at less than $3 per share, she set forth a compelling strategy. She said the business should be managed for the short-term, but re-engineered for the long-term.
A key part of this was to aggressively “invest in the talent and skills required to develop our world-class technologies and products, as well as add new skills in areas like software and application engineering that will help us drive into new markets.”
At the time, Wall Street believed the company couldn’t take on bigger industry rivals including Intel Corporation (NASDAQ:INTC) and Nvidia Corporation (NASDAQ:NVDA). But it’s increasingly looking like Wall Street was wrong.
Lu’s strategy turned out to be more than just puffery, and she wasted little time in transforming the company. AMD has churned out results, and as a result, the stock now fetches more than $14 per share.
There’s still skepticism, of course. Isn’t Advanced Micro resource-constrained? Won’t it inevitably face well-heeled competitive threats that it can’t think its way around? They’re fair concerns, but I believe AMD has demonstrated the critical ability to innovate … and that can push it a long way in this industry.
AMD the Innovator
The irony is that Advanced Micro Devices’ lack of resources hasn’t been a disadvantage, but instead essential for the company’s success. As Amazon.com, Inc. (NASDAQ:AMZN) CEO Jeff Bezos once remarked, “I think frugality drives innovation, just like other constraints do. One of the only ways to get out of a tight box is to invent your way out.”
Su had to scrutinize each move, determining whether it was worth the investment and drive the most value. So she outsourced chip manufacturing, and leveraged the company’s extensive background with graphics technologies, which have become key in emerging categories like virtual reality, augmented reality and artificial intelligence.
Out of this came several breakthrough innovations, many of which have hit or will hit the markets this year. And that’s why AMD stock should keep up its breakneck momentum. Here’s a look at just some of the offerings:
- Ryzen: This segment has seen an aggressive push into premium desktop and mobile platform markets for consumers and businesses alike. Ryzen has demonstrated strong performance and capability, with competitive cost. InvestorPlace.com’s Brad Moon points out that the AMD CPU offerings have “boasted serious performance gains over the previous generation — a much bigger leap than Intel mustered this year — and an advantage with high demand applications that leverage multi-core, multi-thread design.”
- Vega: This high-end graphics processing unit (GPU) is focused on PC gaming, professional design and even machine learning.
- Epyc: This server chip targeted at the valuable datacenter market shook Intel, which currently dominates that business. According to Canaccord Genuity analyst Matthew Ramsay, the technology has emonstrated “record benchmark scores” and that there are “uncompromised memory and I/O bandwidth configurations.”
There are already encouraging signs of traction. Even though the AMD Ryzen chips have been selling for just a few months, they took about 26% of x86-compatible submissions during Q2, up from 18% in the same period a year ago. Granted, the data is focused on Microsoft Corporation’s (NASDAQ:MSFT) Windows platform, but this constitutes a huge chunk in the market.
AMD also is seeing progress with Epyc, snagging cloud deals with MSFT and Baidu Inc (ADR) (NASDAQ:BIDU), as there’s a lot of corporate interest in finding alternatives to Intel.
And Advanced Micro Devices recently scored a big deal with Apple Inc.’s (NASDAQ:AAPL) iMac Pro, which will feature Radeon graphics cards built on Vega technology.
Bottom Line on AMD Stock
Advanced Micro still is fraught with risk. One of the biggest concerns is an attempted move into the enterprise market, where sales cycles are long and customers want features — such as seamless integration and security — that go beyond pure performance.
And naturally, Intel will be punching back hard on this front.
But I’m encouraged by AMD’s success on cutting-edge innovation, and its fearlessness in taking bold risks. As long as Su keeps the company disciplined, AMD stock will continue to run higher.
Tom Taulli runs the InvestorPlace blog IPO Playbook and operates PathwayTax.com, which provides year-round tax services. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.
