In my opinion, Advanced Micro Devices, Inc. (NASDAQ:AMD) is one of the most unpredictable names in the markets. Compared to the technology and semiconductor competition, AMD’s financials are simply not up to snuff. But that’s also the reason why so many speculators love AMD stock.
The burden of higher expectations can humble giants, whether we’re talking about investments, World Cup matches, or even presidential candidates. In many of these situations, the underdog has nothing to lose. But for those entities to which expectations are the highest, the pressure can get to anyone.
I’m not saying Advanced Micro’s competitors are incapable of handling pressure, because that’s simply not true. For instance, Nvidia Corporation (NASDAQ:NVDA) continues to provide a steady hand for shareholders, with NVDA up over 21% year-to-date. Intel Corporation (NASDAQ:INTC), another long-time rival, is still up 8.5% YTD, despite losing double-digits last month.
These are both great companies, and I have confidence in their longer-term potential. As a cryptocurrency investor, I obviously recognize Nvidia’s contributions in the graphics-processing business. Intel recently showcased its prowess with next-gen technologies during the Winter Olympics, including virtual reality and 5G network capacity.
Advanced Micro doesn’t necessarily have the brand leverage that these two stalwarts carry. But at the end of the day, both the tangibles and intangibles must translate to shareholder returns. Undeniably, that’s where AMD stock has the competition beat, surging to a nearly 44% first-half of the year lead.
But how long can the perennial runner-up defy obvious vulnerabilities in its financials? While it’s true that management has significantly improved its standing over the years, they’re behind the ball against their rivals. Also, questions remain about future sales growth, and the subsequent impact towards AMD stock.
AMD Stock Performed Brilliantly, But Don’t Get Complacent
Given how wildly Advanced Micro shares trade hands, it’s no surprise that InvestorPlace contributors likewise have wide-ranging views. For instance, both Bret Kenwell and Dana Blankenhorn cited optimism for AMD stock. On the other hand, we have Ian Bezek, who asserts that we’ve seen the company’s best days for now.
A common theme among AMD bulls is that management has turned a new corner. Rather than a severely struggling outfit, the company finally became profitable last year. Optimists often reference its most recent earnings report, which indicates that profitability is no fluke. IP’s Kenwell wrote:
“With rising demand comes a spike in revenue, which we had (and again) still have with AMD. The company worked its way from losses, to the black and now to profitability. It tidied up its balance sheet and showed Wall Street it’s ready to play ball.”
That said, Bezek noted that covering analysts don’t believe the rise in AMD stock is sustainable. He mentioned that, “often, when a stock surges, analysts rush to boost their price targets. That’s simply not happening to a significant degree in this case.”
So what’s the real deal here? I agree with Blankenhorn and Kenwell that current financial momentum is impressive. But where we have divergent views is Advanced Micro’s capacity to then take on the giants head-to-head.
For example, Bezek states that approximately 10% of AMD’s revenues is blockchain-related. That’s a huge problem right now because cryptocurrencies are in a bearish cycle. An Elite Fixtures study estimated the cost of mining one bitcoin in the U.S. at $4,758. Against the time of writing price, that only provides a 34% margin, and that’s assuming you’re successful in mining it!
In other words, top-line sales potential is already pressured from the last go-around, which could hurt AMD stock.
Competitors Have Been Hit hard, But So Has AMD
Blankenhorn, though, remains optimistic because Advanced Micro’s competitors have fallen on tough challenges. Primarily, he cites Intel’s production-credibility issues with its 10-nanometer chips. Also, AMD plans feature-rich offerings, and not just price-based considerations.
As Blankenhorn puts it, “The bottom line here seems clear. When your opponent blows a tire, you have an advantage in the race.”
This dynamic should boost AMD stock. However, I worry that wide-eyed investors may jump on the bandwagon without considering the other argument: Advanced Micro has its own challenges to deal with, and it has fewer resources at its disposal.
That’s why I don’t think the cryptocurrency issue is a minor detail. Sure, it’s just 10% but, it’s a 10% that the company can’t afford to drop. Plus, Intel might have problems with 10-nanometer technology, but AMD doesn’t have an equivalent, alternative solution.
With all this in mind, what should you do with AMD stock? I think it’s too risky to buy-in at current levels, even though it has dropped substantially since mid-June. Especially with second-quarter earnings coming up later this month, a less-than-stellar result could make shares volatile.
Finally, AMD stock is an “emotional” investment. Even among my colleagues, we’re going back-and-forth on it’s potential. For this reason, emotional, and particularly underdog investments, present opportunities on both sides of the fence. If you’re a buy-and-holder, I’d wait for prices to drop around $13. AMD has dipped, but not quite enough to justify the risk.
As of this writing, Josh Enomoto is long bitcoin.
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