Advanced Micro Devices (NASDAQ:AMD) had been on a roll through June, culminating with an impressive 7.86% gain on June 10 that put AMD stock at a new high for 2019. After a weeklong slide that saw AMD stock price dip below $30, it’s been bouncing back, but slowly. However, after gaining ground earlier this week, it’s once again sliding, including a 1.61% drop on Thursday that put it just a penny above that $30 mark. Sometimes the road to recovery can be rocky…
AMD’s primary revenue source is its Computing and Graphics division. In the first quarter, this segment brought in $831 million out of $1.27 billion in total revenue for the period. That was down 26% year-over-year, and although the drop was expected — the bottom falling out of the crypto currency mining business was sure to be a boat anchor on GPU sales — AMD stock took a hit after those numbers were reported.
Rivals Nipping at AMD’s Heels
It’s useful to see how Advanced Micro Devices stock has performed compared to its rivals in that Computing and Graphics division.
Nvidia (NASDAQ:NVDA) is AMD’s primary competition in graphics cards. And while graphics card sales took a hit industry-wide because of the crypto collapse, Nvidia managed to gain ground on AMD. In Q4 2018, it was reported that Nvidia had grabbed a commanding 80% of the desktop GPU market, up from 66% the year before. However, when you look at the trajectories of these two stocks so far in 2019, they are very different. Since the start of the year, AMD stock is up 78.9% while NVDA has posted 19.63% growth. Over the past three months, amid the renewed threats of tariffs as the China-U.S. trade war escalates, the AMD stock price has still gained 9.36% while NVDA has been in a slump, losing 16.76%.
When it comes to desktop and laptop PC processors, AMD’s competition is Intel (NASDAQ:INTC). And while Intel still dominates that market, AMD has been successfully chipping away at its lead. A new generation of AMD Ryzen processors announced in May has the potential to extend those gains even further. Intel’s stock has gained 5.8% since the start of the year, compared to that 78.89% growth for AMD stock. And during the past three months — where Intel has not only been hurt by the China situation, it was also hit by another high profile CPU vulnerability — Intel stock has lost 13.31%.
Positives Driving Advanced Micro Devices Stock Recovery
The question has to be asked: With the trade war with China affecting the entire tech industry, dried up demand for GPUs affecting both Nvidia and AMD, and Nvidia growing its lead in desktop GPUs, why is AMD stock outperforming its rivals to such a high degree in 2019?
A big part of the answer is correction. Advanced Micro Devices stock was actually trading at around the same levels last fall as it is today. But a Morgan Stanley downgrade in October caused AMD stock to crater. Since then, the AMD stock price has been on a slow but steady rise, getting a big boost on June 10 when the same MS analyst raised his outlook on the company. What looks like huge gains is really Advanced Micro Devices stock recovering, climbing back up to its 2018 levels.
AMD may have lost ground in the desktop GPU market, but there is buzz building about its newly announced 7nm Radeon graphics cards and they could help to win back ground lost to Nvidia. The latest Ryzen CPUs look to be even more competitive with Intel’s best to keep that segment growth going. And AMD has won a series of high profile gaming contracts. The company’s processors and GPUs will be powering the forthcoming Playstation 5 and Xbox Scarlett game consoles, as well as the new Stadia game streaming service from Alphabet’s (NASDAQ:GOOGL) Google. That Stadia announcement alone gave AMD stock a 12% boost.
A big test of investor confidence will be AMD’s Q2 earnings, due to be announced on July 23. With Q2 EPS projected to be 8 cents (a year-over-year decline of nearly 43%) and revenue also expected to be down, the question will be whether optimism for AMD will prevail. If not, June 10 may turn out to be the 2019 high point for Advanced Micro Devices stock.
As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.