Advanced Micro Devices Inc. (NASDAQ:AMD) has settled into a trading range as investors wait to see how its new chips do in the market. As far as AMD stock goes, the action has been downright boring, in fact.
The consensus estimates of the June quarter’s earnings, due out at the end of July, are for a small loss of 3 cents per share on revenue of $1.16 billion. That would represent a big improvement over the 8-cent loss and $984 million in revenues from the March quarter. But a loss is still a loss, and Advanced Micro needs to start making money now that its promises have become product.
Opinion on whether they can do this is divided.
AMD has nine analysts who call it a buy and five who call it an outright sell, with most calling it a “hold,” meaning … well, they don’t know what to think. What they do agree on is that AMD needs to turn losses into profit soon, if it is to keep their attention.
As a result, AMD stock has become rangebound after first-quarter earnings disappointed. A low of about $10 per share was put in early in May, and a high of nearly $13 per share was hit in early June. Shares are currently hovering midway between the two, at about $11.50 per share.
EPYC and Beyond
They’re perfect for gaming PCs, which need high performance but whose users don’t have unlimited budgets. At the E3 game show, the company announced a supply deal with Dell’s Alienware brand, a key player in that space.
But it’s in servers where the company hopes to get profits. AMD’s new EPYC server chip specifications leaked out recently — the official announcement is due June 20. The figures look impressive, but Intel has 99% of this market with its x86 chips. Don’t buy the line that AMD can overcome that.
But if it proves it can keep up with Intel’s technology, AMD stock does become serious takeover bait, as I wrote earlier this month. A Chinese or Japanese buyer could give the company the capital boost needed to ramp up production, and AMD’s intellectual property would make Asia, in theory, independent of American suppliers.
Will the Wolf Survive?
Advanced Micro Devices has always lived like a wolf at the margins of a human encampment, feeding on scraps, always appearing ready for taming but somehow never advancing nor retreating.
The current bull case for AMD stock is that it’s now well-positioned to win share in gaming, and in cloud servers, which suddenly need higher-performance chips to deal with artificial intelligence applications. The artificial intelligence market is expected to grow 10-fold by 2020, then grow six-fold again in the succeeding five years. Advanced Micro has competitive technology.
The problem is that the market has heard such arguments before.
AMD is always just on the cusp of a market breakthrough. It either has a great new technology that will put it ahead or a great new market it’s about to dominate.
It just never seems to deliver.
Bottom Line on AMD Stock
Advanced Micro Devices will remain an outsider looking in so long as it remains independent — an asset base of $2.5 billion loaded up with $1.4 billion in debt being inadequate in an increasingly capital-intensive market. AMD lacks the cash to capitalize on its advantages, while its rivals need it to stay in the market so their own monopoly positions don’t become obvious.
As I wrote before, this chipmaker needs to be sold to prosper. That’s the news worth waiting for. Anything else remains a head fake. You buy AMD stock because you are speculating on that sale, and a resulting bidding war.
I can see no other reason to own the stock.
Dana Blankenhorn is a financial and technology journalist. He is the author of the historical mystery romance The Reluctant Detective Travels in Time, available now at the Amazon Kindle store. Write him at firstname.lastname@example.org or follow him on Twitter at @danablankenhorn. As of this writing he owned no shares in companies mentioned in this article.