Advanced Micro Devices (NASDAQ:AMD) is like a small market sports dynasty. You’re amazed that they’re winning, and you keep waiting for the big money to drag them down, but it’s still hard not to bet on AMD stock.
In this case the big money is Intel (NASDAQ:INTC). Intel remains 10 times bigger by sales, 6.5 times bigger by market cap. Intel has assets of $127 billion, AMD $4.5 billion.
But if your bet has been on the “safe” choice, you’ve been a loser. Over the last five years, Intel has delivered a capital gain of 52%, close to the average S&P stock. AMD is up 630%. I hope you’ve enjoyed your Intel dividends, which now yield 2.66%. AMD doesn’t have any dividends.
AMD CEO Dr. Lisa Su is now being hailed, rightly so, as one of the world’s best CEOs. When it comes to chip chemistry Dr. Su knows her stuff, and she put in her time at such companies as Texas Instruments (NYSE:TXN), International Business Machines (NYSE:IBM) and Freescale.
But she was given a good hand.
Ryzen and AMD Stock
AMD’s success is based on a strategy developed under Su’s predecessor, Rory Read, who now works for Virtustream, part of Dell Technologies (NASDAQ:DELL). Read, a financial executive, fixed AMD’s balance sheet and committed it to developing new designs, not just copying Intel functionality.
Su, whose doctoral work involved the then-novel idea of silicon-on-insulator technology, fulfilled that strategy with a microarchitecture called Zen. She also and moved production to Taiwan Semiconductor (NYSE:TSM) as it was gaining a lead on Intel in manufacturing. When graphics got hot, AMD’s Radeon held its own against Nvidia (NASDAQ:NVDA) just as it once did with Intel in PC chips.
But Intel has the cash to persist. It claims its new Icy Lake beats the Ryzen 5 on benchmarks. On the graphics side AMD has been losing share to Nvidia as the Bitcoin bust created a glut.
AMD’s size still leaves it little margin for error. The shares remain volatile, subject to sudden downdrafts like those that hit in March and just this month.
Analysts are expecting good things from the current quarter, a profit of 5 cents per share on revenue of $1.52 billion. The chip recession, which cut revenues by 40% between June and March, seems to be reversing. Our Bret Kenwell says it’s time to buy.
Lisa Su and AMD Stock
MSu was born in Tainan, Taiwan, which was the island’s capital under the Qing Dynasty. So was Nvidia CEO Jensen Huang. Su’s family emigrated to New York when she was three years old.
For “fab-less” companies like AMD and Nvidia, China is always an issue. AMD has a joint venture in China for Intel-compatible processors, which Su signed in 2016, worth $293 million .
While a version of the AMD EPYC was produced by the venture last year, Su said at the Computex show in Taiwan this month that no further technology transfers are planned. The company has stopped shipping laptop chips from Huawei and has moved backend testing and assembly to Malaysia.
Disentangling itself from China makes AMD less vulnerable to the trade war. It also takes away a huge supply of back-up capital, money that came in handy back in 2016, when the Chinese joint-venture was signed.
The Bottom Line on AMD Stock
AMD stock has no dividend, but the company has been using its profits wisely.
AMD has been steadily dropping its debt load under Su. In March had almost enough cash and short-term securities on the books to pay off its long-term debt with a check.
AMD has some great chips in its pipeline and should continue to take advantage of Intel’s weakness, but it’s fully valued at 4.5 times annual sales. I wouldn’t expect it to do any better this year than the rest of the semiconductor industry.
Dana Blankenhorn is a financial and technology journalist. He is the author of the mystery thriller, The Reluctant Detective Finds Her Family, available at the Amazon Kindle store. Write him at email@example.com or follow him on Twitter at @danablankenhorn. As of this writing he owned no shares in companies mentioned in this article.