Like other tech operators, Advanced Micro Devices, Inc. (NASDAQ:AMD) got caught in the sell-off in late October. And, unfortunately, the company has yet to recover. AMD stock is off about 23% from its October highs.
Now, there are certainly reasons to be bearish. First of all, the company is a relatively small player in the semiconductor market and has a long history of disappointments. Just some of the mega-operators AMD must fight against include NVIDIA Corporation (NASDAQ:NVDA) and Intel Corporation (NASDAQ:INTC).
Next, AMD stock already posted a big run-up last year, so, yes, it makes sense that it eventually cooled off.
What the GPU Can Do for AMD Stock
Yet, I think the recent weakness in AMD is an opportunity for investors. And to see why, it is important to get a sense of the big picture — that is, the power of the GPU (Graphics Processor Unit).
While this technology has been mostly for gaming, it has recently proven to be ideal for next-generation systems like AI (artificial intelligence) and machine learning. This is certainly good news for AMD, since the company is a long-time developer of GPUs.
As a testament to the company’s abilities, INTC has entered a partnership with Advanced Micro Devices to leverage this technology. According to InvestorPlace.com’s Luke Lango, “This is huge news for AMD. The partnership gets them on the right side of a shifting trend at essentially no cost to its current business.”
But, of course, the company also knows how to build CPUs. In other words, AMD has an opportunity to capture significant market share. Here’s how the company laid it out in a recent investor presentation:
- PCs: $28 billion TAM (total addressable market).
- Immersive (such as virtual reality and augmented reality): $15 billion TAM.
- Datacenter: $21 billion TAM.
No doubt, these are the kinds of opportunities that can easily move the needle for AMD stock over the coming years. And it could be soon, as witnessed by some of the recent marque deals, which have been announced during the past couple weeks:
- Baidu Inc (ADR)(NASDAQ:BIDU), which is the leading search engine in China, has selected AMD’s EPYC processors for its AI platform. The plan is to use the chips across BIDU’s global datacenters beginning in the first quarter of next year. In the press release announcing the partnership, the senior director of the Baidu System Technologies Department noted: “AMD EPYC processors provide Baidu with a new level of energy efficient and powerful computing capability.”
- QUALCOMM, Inc. (NASDAQ:QCOM) and AMD will collaborate to build faster technologies for ultrathin notebook PCs. This will involve integrating Ryzen mobile processors with the Snapdrago LTE modem solutions, which should result in faster gigabit speeds, much improved graphics rendering and greater efficiencies.
- Microsoft Corporation (NASDAQ:MSFT) has chosen EPYC processors for the first public cloud instances on Azure, which will be used for virtual machines. The technology will provide a 33% improvement in overall performance.
Bottom Line on AMD Stock Price
Despite all the recent activity with partnerships, AMD stock has continued to languish. But this is really an opportunity to get a better entry point on the shares.
While there are risks, I think they are overblown. AMD CEO Lisa Su has done a standout job in turning around the company by focusing on the right market opportunities. In the meantime, she has reduced the debt load and improved the financials.
Now, AMD stock could continue to be in a funk, as can happen with certain tech companies that have a dicey past. But for those investors with a long-term perspective, the stock looks like a good way to capitalize on major trends like AI and the datacenter.
Tom Taulli is the author of High-Profit IPO Strategies, All About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.
