I couldn’t have gotten Advanced Micro Devices, Inc. (NASDAQ:AMD) any more wrong if I tried. Very simply, AMD stock put in one of the most phenomenal performances in recent memory. Year-to-date, Advanced Micro gained an astonishing 275%, leaving most of its semiconductor competition grasping at air. And if you’ve wonder how exchange-traded funds such as iShares Core S&P Mid Cap ETF (NYSEARCA:IJH) and iShares Russell 2000 Index (ETF) (NYSEARCA:IWM) pulled off superior returns, part of the reason is that they hold AMD stock.
The concerns that I had — and ones that are still echoed by Wall Street analysts — were pulled to the curb and given a New Jersey-style beat down. Poor financials? Unstable cash flow? Extreme volatility in the past? Fuggedaboutit!
It’s the straight numbers that matters. From this perspective, Advanced Micro is the Donald Trump of the markets. AMD shares are backed by some of the ugliest fundamentals among its competitors. It has no business doing business. And yet, here it is.
AMD Has Plenty of Fight
Of course, it’s not completely fair to label AMD stock as a lost cause. Clearly, several analysts miscalculated the enthusiasm that the company’s product offerings would generate. A prime example is its graphics processing unit division, which is considered world-class. Sony Corp (ADR) (NYSE:SNE) was willing to gamble its reputation as king of the video game console with an AMD GPU. That alone should have clued me in that there was something special cooking underneath the shadow of Intel Corporation (NASDAQ:INTC).
Investors have to admire the resiliency of Advanced Micro despite the cacophony of naysayers. The company is finally going to release its next-generation brand of processors next year, appropriately called Zen. Its architecture is designed to go head-to-head with Intel in single-threaded performance, a critical component for today’s graphic-intensive games. Provided that the price is right, AMD stock could jump higher from capturing more market share.
Other non-directly related organizations are taking note as well. A few months ago, Alibaba Group Holding Ltd (NYSE:BABA) inked a cloud-computing deal with AMD. The latter carries tremendous leverage in China, which hosts roughly 35% of the Asian powerhouse’s websites. As the cloud continues to become a priority for the technology sector, the Alibaba deal was purely an ingenious move.
AMD Stock Can’t Escape Its Harsh Reality
At the same time, a basic question has to be asked — if AMD shares weren’t considered attractive at $3 a pop, do they look good above $10?
For now, Advanced Micro has the appearance of a one-track mission to the moon. However, every tradable asset sees pronounced bullishness cool off at some point. It’s unnatural and unhealthy to see anything else, especially if the core financials are so rotten.
I understand that against its historical highs, AMD stock appears undervalued. Yet there’s a reason why the company fell off the perch in the first place.
You also have to consider that despite some awful collapses in the markets, AMD shares are still grossly overvalued against earnings and sales. I’m all for taking risks — after all, if there’s no risk, there’s no reward. But Advanced Micro seems keenly dependent on the “dumber trader.”
Let me explain. AMD is largely running on potential — for its products, for its expansion and quite possibly, as a takeover target. Some or all of these things could occur, which would make AMD stock an absolute screamer of an opportunity. Or, none of these things could occur, and it could become the next Twitter Inc (NYSE:TWTR). There are too many variables to make it a reliable investment pick. Thus, a buyer is mostly hoping that there’s another person willing to be unloaded upon.
If you’ve made a ton of profits throughout AMD stock’s near-quadrupling of value, congratulations! But for the rest of us, jumping in on Advanced Micro is gambling on momentum, and not much else. Sure, the company improved key sectors of its business, but tech is also a desperately competitive industry. AMD is clearly not taking it lying down, but neither will its rivals.
As of this writing, Josh Enomoto owns SNE shares.
