The PC CPU market is in need of a shake-up. After nearly a decade with Intel Corporation (NASDAQ:INTC) dominating the chip market, Advanced Micro Devices, Inc. (NASDAQ:AMD) has a chance to disrupt the leader. And markets are signalling AMD has a good chance of succeeding this year.
Intel is valued at just 12 times forward earnings and is cheap compared to AMD. It has yet to report sales for its latest CPU, Ryzen. For now, the stock’s value is inflated, with a forward P/E of 45 times.
AMD’s Ryzen 5 Targets the Mainstream Market
In March, AMD released Ryzen 7, a high-end processor that targeted the enthusiast market. It followed this month with Ryzen 5. This processor is more affordable and targets the mainstream market.
On April 11, one technology review sites even declared the Ryzen 5 the most significant gaming CPU AMD ever made. The site singled out aggressive pricing, high computing power with six-cores and comparable performance to Intel as reasons for the claim.
Retailers are pricing Ryzen 5 as low as $189 for the four-core 1500X. The 1600X, which has six cores, is nearly identical to the Ryzen 7 1800X. Budget PC builders may flock to this chip to save money.
The higher core count also helps it outperform INTC chips for things like video encoding and video processing. Games that demand multiprocessing, like Civilization VI, also work better on AMD.
Earnings Report on May 1
AMD confirmed that it will report quarterly results on May 1 after the market closes. The report will give investors an idea on the sales strength for Ryzen 7. It launched the chip at the beginning of March. A strong sales report will help AMD’s stock recover. CEO Lisa Su will likely confirm that the company will release Ryzen for notebooks and servers on time.
Markets expect the release for notebooks will happen sometime in the second half of the year.
Dubbed Naples, AMD expects to release the two-socket server chip based on the Ryzen platform in the second quarter. It will compete against Intel’s Broadwell server chips. Early benchmarks suggest that Naples will have more memory bandwidth to work with. That gives AMD’s solution an edge over Intel’s server chip. It is too early for investors to forecast market share growth for AMD in the server market. Pricing and chip speed will be the two factors that will shape AMD’s success in this segment of the market.
Competition Heats Up With Nvidia
Investors should not forget about AMD’s Polaris graphics card release from last year. Nvidia Corporation (NASDAQ:NVDA) already responded to AMD by discounting prices of its GPU cards. The 1080 Founders Edition and 1080 GTX, for example, are on sale on Amazon.com.
AMD will eventually launch Vega, a high-end GPU, this year. NVDA benefits from pushing out those cards now, before that happens. Once AMD releases Vega, Nvidia will probably discount prices for the high-end cards by even more.
Takeaway on Advanced Micro Devices
AMD will likely reiterate strong expectations for Ryzen. The chip release will help the company win back market share in the PC desktop, notebook and server markets. Consider the stock as a good speculation with upside potential.
As of this writing, Chris Lau did not hold a position in any of the aforementioned securities.