After a huge run-up in 2016, Advanced Micro Devices, Inc. (NASDAQ:AMD) stock has been mostly running in place this year. But AMD appears on the cusp of breaking out, and the catalyst could be today’s release of its new Epyc enterprise processors.
The Epyc is a high-performance server processor for use in data centers, featuring a high (32) core count, superior memory bandwidth, and high-speed input/output channels. To the layperson, that might not mean much.
But the tech world is positively giddy over AMD’s new product, and so are investors: AMD stock jumped more than 4% on Monday, another 6% or so Tuesday and 10% Wednesday.
After bottoming at $10 in early May, AMD traded at the high end of its two-month range between $10 and $13. It also just poked its head above its 50-day moving average, something the stock has scarcely done since March, and is now trading just shy of $14 per share!
Waging War vs. Intel
Part of the excitement over the Epyc, formerly called “Naples,” is the cost. As leaked Epyc specifications revealed last week, the single-socket version is up to 20% cheaper than Intel Corporation’s (NASDAQ:INTC) market-dominating Xeon equivalent. It also consumes less power.
While the Epyc is not an immediate threat to Intel, whose x86 chips lord over the CPU market with a 99% share, the fact that it’s cheaper and more energy efficient should help it at least start to chip away at Intel’s virtual monopoly in the server space.
With the second quarter coming to a close, Advanced Micro Device’s new server chip won’t have much of an impact on current earnings. But they should have a profound impact going forward, which is a big reason why analysts expect AMD to be the black this year (7 cents per share) for the first time since 2011, and why EPS is expected to more than quadruple next year (29 cents estimated).
Those numbers could continue to expand as AMD capitalizes on a cloud server market desperate higher-performance chips that cater to artificial intelligence applications. As our own Dana Blankenhorn wrote earlier this week, “The artificial intelligence market is expected to grow 10-fold by 2020, then grow six-fold again in the succeeding five years.”
Throw in AMD’s swelling position in the gaming industry—its new Ryzen microprocessors and Vega graphics helped secure a deal with Dell’s Alienware, a key brand in gaming PCs—and the company has two major avenues toward future growth.
Unlike Intel, Advanced Micro Devices’ best days are ahead of it. As the company matures and becomes profitable, AMD stock should become more stable and reliable, with a more consistent upward trajectory.
Buy AMD Stock Below $14
After topping $15 in February, AMD stock kept getting knocked back until eventually the bottom fell out and it downward-spiraled all the way to $10 in May.
There have been plenty of fits and starts since, with no rally lasting more than a week. With the official unveiling of its Epyc and its new Ryzen product due out next month, there are enough near- and long-term catalysts here to think this AMD rally will last.
I’d buy AMD stock now before it breaks above $14, which at this rate could happen by week’s end.
As of this writing, Chris Fraley did not hold a position in any of the aforementioned securities.