Of the speculative investment opportunities available, Advanced Micro Devices, Inc. (NASDAQ:AMD) is one of the trickiest to decipher. On one hand, you have to love Advanced Micro Devices stock after its superb earnings report. On the other hand, AMD stock has never been a fundamentally comfortable investment. Which side will ultimately win the argument?
With semiconductor rivals like Intel Corporation (NASDAQ:INTC) and Micron Technology, Inc. (NASDAQ:MU) generally performing predictably, AMD stock seems unnecessarily risky. Especially at this juncture, the story becomes less compelling. From the opening session of 2016, AMD skyrocketed over 300%. But with such enormous enthusiasm, you typically expect a correction. If you don’t, you should — nothing rises in a straight line without serious contention.
The other concern is that since 2017’s opener, Advanced Micro Devices stock has lost 3%. It’s not the magnitude with which I’m concerned. Rather, it’s that shareholders have gone nearly a year-and-a-half without a profit. Those who came on board late to AMD might lose their patience, and dump out at the earliest opportunity.
That might explain why shares have been so darn choppy. The company’s “fanboys” will insist on “HODLing,” or holding on for dear life. Yet not everyone shares that mentality. You can’t make money in the markets until you take profits, and AMD stock is no exception. Plus, not everyone got in at $2 per share. The motivation is different for different entry points.
With all that said, the first-quarter earnings report is no joke. Earnings per share at 11 cents exceeded consensus estimates by 2 cents. AMD hauled in $1.65 billion in sales, or a 40% year-over-year lift. Finally, management significantly boosted Q2 guidance.
But do investors still have room for profitability in Advanced Micro Devices stock?
Advanced Micro Devices Stock and Cryptocurrencies
I can understand the hesitation in jumping on board right now. When the markets resumed following AMD’s Q1 report, AMD stock jumped 14%. It added a modest 0.6% gain the next day. Considering the incredible choppiness, it seems a great time to sell, not buy.
However, the context has changed. Namely, that cryptocurrencies are on the rise. As you know, Advanced Micro Devices stock directly benefits from the “blockchain economy.” The company’s advanced processors are a necessity for crypto-mining, or the algorithm-intensive process in which people compete to validate transaction data blocks for a particular blockchain network.
The more enthusiasm for crypto-mining, the higher the demand for AMD’s processors, and by logical deduction, AMD stock.
However, the bears consider cryptocurrency volatility a risk to the company. Indeed, the only thing more volatile than Advanced Micro Devices stock is bitcoin and its ilk. Moreover, management downplays cryptocurrencies.
They say they’re not dependent on bitcoin. I’m not going to say that they are. However, let’s just be honest: It doesn’t hurt. In addition, cryptos are part of a bigger development to digitize payments and business transactions.
Most bitcoin critics blast cryptocurrencies as purely speculative investments. That’s always a risk. However, the reason why people use cryptocurrencies — as an alternative economic instrument — will likely not change. Indeed, more people will seek cashless alternatives. Thus, AMD is probably levered towards a paradigm-shifting industry.
But here’s the crazy thing. Management raised Q2 guidance despite anticipating declining crypto-mining revenues. That has to boost confidence for the bulls.
Nevertheless, I offer some friendly disagreement. I think AMD will see a lift in processor sales due to mining, not a slip. In less than two years, I’ve witnessed bitcoin elevate from nerd culture to something Social Security pensioners discuss over coffee.
Advanced Micro Devices Stock a Solid Gamble
In the world of investment gambles, Advanced Micro Devices stock is a rational one. The cryptocurrency market has exceeded most people’s expectations. I think it’s safe to say that AMD has also surprised many folks. That said, it’s still a gamble.
As InvestorPlace contributor Bret Kenwell mentioned, the markets anticipate AMD stock to break free from its consolidation pattern. Sentiment is strong, business is booming, and the company delivered a stellar Q1 report.
But Kenwell also cautions that AMD shares haven’t performed that well, despite fundamental positives. Should trading sentiment break down, it could catalyze an ugly fall. I’m also not liking the trend of lower highs and lower lows.
I am cautiously optimistic about the company. It has the right tailwinds moving at just the right time. Additionally, Advanced Micro Devices stock has demonstrated resilience in the past.
As of this writing, Josh Enomoto is long bitcoin.
