Advanced Micro Devices, Inc. May Be As Good As It Will Get

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Advanced Micro Devices stock - Advanced Micro Devices, Inc. May Be As Good As It Will Get

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Since its spectacular run-up in 2016, shares of Advanced Micro Devices, Inc. (NYSE:AMD) have gone nowhere even as the company itself has recovered.

AMD now has two straight profitable quarters under its belt, giving it net income of 2 cents per share for all of 2017. Its debt load is being slowly reduced, with $110 million being paid back in 2017 alone. Even operating cash flow for the fourth quarter was positive, to the tune of $68 million.

Since this period of profitability began in July, however, the shares are down 10%. Buy the rumor, sell the news.

Naturally people are divided on the future. Investorplace.com’s Josh Enomoto writes that “round two” of the cryptocurrency boom will benefit AMD, since its processors are often used to solve cryptocurrency puzzles. Since he wrote that story on February 20, Bitcoin prices are down about 10%.

Good News on Advanced Micro Devices Stock

The better news about AMD is that it’s not going to rely on cryptocurrency for profit. Instead it’s going after the embedded market with two new chips designed to go into everything from military jets to casino machines, and which could go into self-driving cars as well.

That should mean steady sales and profits, assuming AMD’s sales force can beat Intel Corporation (NASDAQ:INTC) to deals. AMD is often called the “other x86” company  because its chips run the same software as Intel’s, like Microsoft Corporation’s (NASDAQ:MSFT) Windows.

But being Intel-compatible has a price. Bugs that hit Intel can hit AMD, too. Such is the case with Spectre, a design flaw discovered last year. The same type of lawyers going after Intel over Spectre are now going after AMD. 

Here is more good news. AMD’s comeback was sparked by a CPU dubbed Ryzen and a graphics line called Radeon, which when used for video coding is called Vega. It is now combining these improvements in a new line of “Ryzen Ridge” chips for gaming PCs. Its second-generation Ryzen chips are 17% faster than their predecessors.

Advanced Micro Devices’ Ryzen?

All this good news has many people recommending AMD stock again.

Our Bret Kenwell calls it the perfect buy, noting that a recent fall in the stock price as the entire tech sector fell makes a good buying opportunity. Chris Lau, also of Investorplace.com, liked the fourth quarter as well, expecting a refreshed product line to keep the good times going. And Wells Fargo & Co (NYSE:WFC) also likes the stock. 

Once again, bulls are talking about AMD “taking down Intel.” This time the argument is that, since AMD doesn’t own any chip-making plants or foundries, it can take advantage of Intel’s difficulties in delivering chips that have just 7 nanometers between circuit lines, instead of 10 nm. It can simply order its chips from the foundries that have figured out the new process, and profit.

Bottom Line on Advanced Micro Devices Stock

The problem is I have seen this movie before.

I have been writing about technology for 35 years, and the story is always the same. AMD can beat Intel. AMD is about to beat Intel. There’s something new in AMD’s labs, or on its drawing boards, that’s really going to take Intel down.

The problem is that Intel is a $217 billion market cap stock with sales last year of $63 billion. AMD is worth $11.6 billion and had $5.3 billion in sales during 2017. There is an order of magnitude difference between the companies.

Intel is no longer threatened by the latest AMD comeback. It has plenty of time to respond, and it will respond. AMD doesn’t have enough time, or enough capital, to take full advantage of its opportunity. It may make money again in 2018, and sales may even grow, but at some point, the hammer will come down, and we’ll be back to where we were.

AMD is, at best, a short-term play. Sisyphus never gets the rock all the way up the hill.

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 danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing he owned shares in MSFT.

Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, available at the Amazon Kindle store. Tweet him at @danablankenhorn, connect with him on Mastodon or subscribe to his Substack.


Article printed from InvestorPlace Media, https://investorplace.com/2018/02/advanced-micro-devices-inc-amd-stock-good-as-it-will-get/.

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