Since the last time I wrote about Advanced Micro Devices Inc. (NASDAQ:AMD) a month ago, AMD stock has risen nearly 20%. Credit the boom in Bitcoin.
Bitcoin, Ethereum and other cryptocurrencies are not created by government fiat, but mined by private individuals who search for valid answers to their encryption puzzles. Each answer represents a “coin,” and each coin then has a value created through an open market ledger.
Fast processors bring faster answers to the puzzle. Cheaper, faster processors lower a miner’s costs. AMD, since it has cheap, fast processors, is naturally going to benefit when mining goes into overdrive.
But, what mining gives, mining can also take away, as AMD shareholders have also learned recently. As Bitcoin prices have fallen — they’re down by about one-third since mid-June — the bears have also come out for AMD stock.
Will AMD Deliver?
AMD has a much lower market cap than any popular chip stock, making it more volatile, which in turn makes it of greater interest to traders and those who go in and out of stocks regularly.
For investors, however, what matters is momentum in sales and profits. For the quarter ending in June, analysts aren’t expecting much: either a 1 cent profit (or loss) on revenue of $1.16 billion being close to the profit of 8 cents per share and sales of $1.027 billion achieved a year ago.
It would certainly beat the loss of 8 cents per share, and sales of $984 million, achieved last quarter, however, and that’s why AMD stock is generally rising. AMD players don’t look a year behind or a year ahead. They look at today, perhaps at a quarter, plunging in and out on rumors.
The fact is, such moves are silly. Mining represents a small part of AMD’s sales. Game systems and cloud servers are where the money is made, and this is where AMD is making its biggest gains, thanks to its low-power designs and its graphics chips.
Small Means Action
Again, AMD is much smaller than rivals such as NVIDIA Corporation (NASDAQ:NVDA), where it competes in graphics, and Intel Corporation (NASDAQ:INTC), where it competes on processors. What may look like a bump in the road for Intel is a mountain to AMD. The same is true with NVIDIA. And, this can have a dramatic impact on the price of AMD stock.
While it is interesting that AMD is “toeing the launching pad,” as Joseph Hargett wrote recently, what should matter to investors is whether the present gains are sustainable. Richard Saintvilus thinks the gains are, and believes AMD stock could hit $15 by the end of the year, delivering a solid gain.
While anything is possible, I think it more likely that AMD is going through the same boom-and-bust cycle it has seen in previous generations of chips. Intel moves slowly, but it moves, and that will be the case this time. It has vast resources with which to design and build new processors that do everything AMD does, and more. This will happen.
When it does, a year or so from now, AMD is not where you will want to be. But, as previously mentioned, AMD shareholders don’t think that far ahead. If you can stand the volatility, if you pay careful attention, and if you don’t fall in love with your AMD investment, you can still make some money here.
Just keep an eye on it. As Bitcoin investors will tell you, action can go both ways.
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 did not hold a position in any of the aforementioned securities.