Chip-maker Advanced Micro Devices (NASDAQ:AMD) has been one of the hottest companies on Wall Street over the past three years. At the beginning of 2016, AMD was a $2 stock. Today, AMD stock trades hands above $30.
Huge fundamental improvements account for the tremendous surge of AMD share price. Back in 2015-2016, this company was struggling to keep its head above water. Its product portfolio wasn’t compelling, and its competitors – namely, the far bigger Intel (NASDAQ:INTC) and Nvidia (NASDAQ:NVDA) – were eating it alive. AMD’s revenues were falling and its margins were compressing. Its losses were adding up.
Today, everything has changed. AMD has dramatically and aggressively refreshed and expanded its product portfolio. Now, AMD’s chips are on-par with – and in some cases, better than – what’s being offered by Intel and Nvidia.
AMD is consequently stealing market share from those two chip titans. causing its revenues and margins to roar higher and turning its huge losses into sizable profits.
This multi-year rally of AMD share price will continue for the foreseeable future, simply because AMD will keep stealing share from Intel and Nvidia.
Zooming out, the reality is that Advanced Micro Devices Inc. is still really small (AMD stock has a $35 billion market cap) relative to Intel, which has a $205 billion market cap) and Nvidia, with its $95 billion market cap.
Thus, as long as AMD keeps stealing share from Intel and Nvidia, investors have reason to believe that AMD stock has a long runway ahead of it. As long as this belief continues to dominate on the Street, AMD share price will push higher.
It’s that simple. As a result, as long as headlines about AMD winning contracts over Intel and Nvidia proliferate, the smart move is to own AMD stock.
It’s All About Market-Share Expansion
When it comes to Advanced Micro Devices Inc, it’s all about market-share expansion.
AMD services two markets: the GPU (graphics processing unit) market, and the CPU (central processing unit) market. Historically, the GPU market has been dominated by Nvidia, and the CPU market has been dominated by Intel. AMD has historically been an afterthought in both industries.
Every once in a while, AMD would jump ahead of Intel by launching a next-generation, better-than-peer product before the competition did, sparking some market share expansion by AMD.
But AMD’s share expansion has historically been short-lived because, within months, Intel typically punched back and knocked out AMD.
That’s what was supposed to happen this time around, but it hasn’t. This time, AMD has launched next-generation products before the competition, and Intel hasn’t punched back.
Instead, AMD has jumped ahead of the competition, and stayed ahead of it, for several years. As a result, AMD has continued to gain share for a long time. In fact, for the first time this century, AMD’s market share has consistently increased for several years.
That’s a big deal. AMD is a $35 billion company. Nvidia is basically a $100 billion company, and Intel is a $200 billion company. When a $35 billion company starts to steal share from a $100 billion company and a $200 billion company, people raise their eyebrows.
When that same $35 billion company steals share for three straight years, investors start to get really excited. That’s because investors love to extrapolate, and if this current share expansion trend continues for several years, Advanced Micro Devices stock could turn into a $100 billion company.
As a result, as long as AMD keeps increasing its share, investors will remain upbeat about AMD’s long-term growth potential. And as long as that remains the case , AMD share price will remain on an uptrend.
AMD’s Market Share Continues to Climb
Fortunately for the owners of AMD stock, all signs point to the fact that AMD’s market share is continuing to climb, and should do so for the foreseeable future.
One of AMD’s big but still nascent growth markets is the data-center world, which Advanced Micro Devices Inc has penetrated with its Epyc processors.
A major part of the bull thesis on AMD stock is that AMD will be able to expand its share of the ultra-valuable, non-cyclical growth data-center market. That is happening.
Recently, AMD announced that Alphabet (NASDAQ:GOOG) has been buying AMD’s Epyc processors. With the addition of Alphabet, over the span of just a few years, AMD has recruited every major U.S. cloud company as a data-center chip customer.
That’s impressive. A few years ago, that market was dominated by Intel. Today, AMD has stolen significant share, and it is positioned to steal even more share over the next few quarters.
It increasingly appears that Intel is simply struggling to keep up with AMD’s pace of innovation. That trend won’t last forever. Intel is far bigger, and has far more resources than Advanced Micro Devices Inc. , and that size advantage will eventually win out. But as long as Intel struggles to keep pace with AMD in the near term, AMD will continue to win share at an impressive pace.
And long as that trend persists, AMD share price will continue to move higher.
The Bottom Line on AMD Stock
Advanced Micro Devices Inc stock has been one of the hottest stocks on Wall Street since 2016, due to the company’s impressive market-share gains. Given the company’s recent cloud contract wins, it appears that its market share expansion remains as robust as ever. As long as that trend remains intact, AMD share price will continue to push higher.
As of this writing, Luke Lango was long INTC and GOOG.
