There’s no doubt about it — Advanced Micro Devices, Inc. (NASDAQ:AMD) is hammering out a compelling turnaround story. A string of new product launches (and yet-to-launch products) has given AMD stock owners more to be excited about than they’ve had in years.
In fact, it finally looks as if the company is going to make rivals NVIDIA Corporation (NASDAQ:NVDA) and Intel Corporation (NASDAQ:INTC) sweat.
On the other hand, AMD shares are about six months ahead of themselves, and priced for about twice the corporate performance that’s plausibly in the near-term cards.
While Wall Street mostly loves Advanced Micro, timing could make a world of difference to your bottom line.
Reality Check
In retrospect, Advanced Micro Devices delivered an impressive move. AMD stock rallied more than 400% between the end of 2015 and March of this year, as years of R&D were finally going to translate into new — and marketable — product lines.
Chief among those products was its new Ryzen processor, which not only performs comparably to Intel’s popular Core i7 and now i9 CPUs, but did so at half or less than Intel’s Core prices. Also fanning the flames of investor optimism was Advanced Micro Devices’ Vega graphics processing platform, which is a contender against Nvidia’s Pascal GPU technology. Throw its new server chip, EPYC, into the mix, and what you’ve got is a company with a lot of things going for it.
As I’ve learned time and time again in my professional and personal life though, new ventures generally take about twice as long to get going as you expect them to, and cost twice as much to launch. AMD isn’t immune to that reality, as all the recent buyers of AMD stock are starting to figure out.
As evidence of this unsurprising headwind, one only has to look at the fact that the price of its Ryzen chips is already falling. The top-of-the-line 1800X did cost $499, but now goes for $450.
The impending debut of Intel’s new 18-core X-series processors clearly has something to do with it. While the nearly $2,000 price tag currently sported by the X-series processors is (1) not even in the same realm as Ryzens, and (2) won’t be commercially launched for a while, lower-cost versions are forthcoming. They may be (relatively) worth the price and the wait.
It’s also worth noting that for all the planning, testing and programming done to-date with the Ryzen, its OEM partnerships with PC companies won’t start delivering Ryzen-inside equipment until later this month. Even then, there’s a ramp-up period as companies like HP (NYSE:HPQ) and Dell refamiliarize themselves with Advanced Micro Devices, which most OEM makers hadn’t taken too seriously in a while.
Its Vega graphics processing technology is on a parallel path. While it hasn’t been ballyhooed for a while (and helped drive AMD stock higher as a result), Vega is not yet for sale. It will be soon, with a projected retail release this month or next. Even so, OEM outfits are still months out from incorporating the platform into the hardware that eventually gets put on retail store shelves or becomes available by ordering on the internet.
And there’s no assurance Nvidia won’t do to Advanced Micro Devices on the GPU front what Intel did to AMD on the CPU front.
That is, while Vega is largely being pitted against Nvidia’s Pascal graphics processing technology, NVDA in the meantime is reportedly planning to launch its next-generation GPU next year. Called the Volta, it could conceivably take the wind out of Advanced Micro’s sails just when the ship finally gets moving.
Bottom Line for AMD Stock
None of this is to downplay the impressive turnaround effort Advanced Micro Devices has made under CEO Lisa Su. There’s no denying the company was fading to irrelevancy just a year ago, but is now equipped to start winning back market share.
That doesn’t mean it’s going to win back all of what was lost in a matter of months.
The fact is, AMD stock was catapulted higher in 2016 and early 2017 on the mistaken premise that Vega and Ryzen wouldn’t face any next-generation competition. They will. They already are. Moreover, even to the extent Ryzen and Vega do win market share from Intel and Nvidia, they won’t do it instantaneously. It could be late 2017 and even early 2018 before we can get a good feel for how marketable either technology truly is.
Trouble is, everyone who has been plowing into AMD stock of late may not be willing to wait that long.
Now is not the time to tiptoe into AMD. That time was a year ago when the high risk was matched by the high reward. The reward isn’t so high now, but with Vega, Ryzen and now EPYC still in their infancy, there’s still a fair amount of risk. The 25% pullback from March’s highs suggests the market is finally starting to see this, but there’s an uncomfortable amount of downside potential still looming.
I’ll reiterate what I said at the end of May — a move below support around $10.60 and closer to $6 would make for a much more palatable entry point. That kind of pullback seems crazy. But given how long it will take Vega and Ryzen to start bearing fruit, we can’t rule out the possibility.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.
