Even though Advanced Micro Devices (NASDAQ:AMD) stock has had a standout year (it’s jumped a sizzling 56% in 2019), it’s still encountered quite a bit of resistance at the $29-$30 level. The question is: In what direction will AMD stock break out?
Well, unfortunately, there are some indications that we may see a downward move of AMD stock price. Just last week, there were some ominous developments that put pressure on the AMD stock price. They include:
- Analysts at Goldman Sachs boosted its price target on AMD’s rival, NVIDIA (NASDAQ:NVDA), to $192 (the current price of NVDA stock is $172). Goldman hiked its target because it saw indications of a pickup in the company’s core gaming business. That could suggest that NVDA is taking share away from AMD.
- AMD has indicated that the launch of its Ryzen 3950X chip, its desktop CPU, will be delayed. The company wants to find ways to improve the chip’s performance.
- Friday’s 11% plunge of Micron (NASDAQ:MU) stock highlights the continued global uncertainties facing the chip market. Note also that the company announced disappointing guidance.
It’s true that the recent news is worrisome. But I still think the outlook of AMD stock remains upbeat because the company is likely to benefit from its focus on product innovations.
Consider some of its recent announcements. It has said that its second -generation EPYC processors, which are based on 7nm technology, have gained traction. Dell Technologies (NYSE:DELL) has integrated the technology into its five newest PowerEdge platforms.
What’s more, there are many other big-name customers and partners that are ramping up their use of AMD’s chips. Among the companies in this category are IBM (NYSE:IBM), Alphabet (NASDAQ:GOOGL, NASDAQ:GOOG), Microsoft (NASDAQ:MSFT), Hewlett Packard Enterprise (NYSE:HPE) and Twitter (NYSE:TWTR).
In AMD’s press release, here’s what Google’s vice president of Engineering, Bart Sano, was quoted as saying: “AMD 2nd Gen EPYC processors will help us continue to do what we do best in our data centers: innovate. Its scalable compute, memory and I/O performance will expand our ability to drive innovation forward in our infrastructure and will give Google Cloud customers the flexibility to choose the best VM for their workloads.”
Keep in mind that the data center is perhaps the biggest revenue opportunity for AMD and the largest potential positive catalyst for AMD stock price. The data-center-chip market, which is currently dominated by Intel (NASDAQ:INTC) and is worth roughly $29 billion a year overall, is open for disruption, as customers want alternative sources, better performance and improved efficiency.
The Bottom Line on AMD Stock
But of course, AMD stock is about more than just data centers. The company has been innovating across other massive markets like PCs and immersive gaming. Cumulatively, these markets should enable AMD to grow tremendously over the long-term, meaningfully boosting AMD stock price in the process.
Granted, Advanced Micro Devices stock will likely remain volatile because of the uncertainties facing the global economy. The company is also relatively small and will have to be disciplined when it comes to spending.
But so far, its CEO, Lisa Su, has been outstanding. She has made smart strategic moves, such as putting together a major deal in China a few years ago to shore up the balance sheet. Her decision to outsource chip production also proved to be positive. More importantly, Su has fostered a culture of innovation.
So all in all, when it comes to innovating chip companies, Advanced Micro Devices stock does look like a pretty good option right now.
Tom Taulli is the author of the book, Artificial Intelligence Basics: A Non-Technical Introduction. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.