It’s amazing just how fast fortunes can change in the technology sector. That’s something shareholders in Advanced Micro Devices (NASDAQ:AMD) stock know all too well. Once the proverbial whipping boy of the semiconductor sector, AMD has bounced back in a big way.
Thanks to advances across a variety of product lines, AMD has gotten its mojo back. Sales are rising, while shares of AMD stock have surged more than 900% since its all-time lows reached a few years ago. And now it seems that it’s chief rivals are starting to run scared.
Intel (NASDAQ:INTC) is being forced to dramatically cut prices for its chipsets in order to compete with AMD and its more advanced products. INTC seeing declining market share and such an aggressive pricing policy underscores that Advanced Micro Devices’ strategy is working. That should put a huge smile on AMD stock investors’ faces.
In the end, AMD could finally gain the crown after so many years as the underdog.
AMD Has the Goods
We’ve talked about it before, but AMD can’t be considered a distant second fiddle to Intel any longer. The key for the semiconductor leader comes down to innovation. During the dotcom boom, AMD’s chips were often seen as the cheap alternative to Intel’s products. Sure, they did the job and cost less, but if you needed real computing power or needed to run a server, you went with INTC’s semis.
However, over the last couple of years that started to change. Thanks to advances across its entire semiconductor line-up, AMD’s chipsets have started to perform better than Intel’s in a variety of ways. Its third-generation Ryzen chips for PC are simply a monster when it comes to computing power. The chips can come with an amazing 12 cores, while a 16-core chip is being launched before the end of the year.
Meanwhile, it has been able to apply this innovation across a few other avenues as well. AMD’s EPYC server chips express similar high speeds of processing capacity, while its advanced graphics processing unit (GPU) has found a place in the cloud. Thanks to their rapid speed at processing information, GPUs have quickly become the go-to chips in many data centers that power A.I., healthcare, science, and engineering applications.
As if the computing power wasn’t enough, Advanced Micro Devices semiconductors are kicking Chipzilla’s butt in another way. That comes down to pricing. Since AMD has long been the cheaper option for CPUs, the firm has kept its prices low. With better performance metrics and cheaper prices, the firm started to see it’s market share climb significantly.
Industry group Mercury Research’s latest report highlights just how powerful AMD has become. According to Mercury’s numbers from the second-quarter 2019, Advanced Micro Devices held 17.1% of the CPU market. That’s up from just 12.3% a year ago. The same could be said for servers- with AMD seeing its market share just from less-than-1% to nearly 3% of the sector.
Advanced Micro Devices Has INTC Scared
For INTC, this slippage in market share hasn’t gone unnoticed. As we said, Intel has long been able to charge premium prices for its premium chips. But with AMD now catching-up and surpassing its own offerings, Intel has been forced to do something it hasn’t done in a very long time and that’s cut prices.
Last week, Intel announced a new group of X-series chips that promise similar computing power to many of AMD’s Ryzen products. The kicker was that prices for these chips were significantly lower than before. For example, back in 2017, INTC was able to charge $1,199 for its 12-core processor chip. Now it’s less than $700. Its most advanced chip in the line-up has had its price cut more than half.
However, that not enough and Intel is still worried about losing more market share to AMD. In a leaked internal slide show dubbed “AMD Competitive Profile,” INTC estimates that it has to cough up an additional $3 billion worth of discounts and other incentives for its Core and Xeon processor line-ups in order to keep the fight vs. AMD going.
Even despite its size, $3 billion is no small chunk of change. And the pricing pressures will erode INTC’s currently lofty margins. Moreover, any decreases in market share will result in fewer sales overall. That’s not a good situation for Chipzilla. But it does show that AMD is starting to seriously beat Intel on a number of fronts.
AMD Stock Could Be the Big Buy
With INTC being forced to cut prices, it underscores just how dramatic Advanced Micro Devices’ turnaround has been. It also shows its working in a big way. The best part is that there’s still plenty of market share to be had. Thanks to backward compatibility and a new chip launch under its Threadripper brand — which will push the core count even higher — AMD has plenty of runway left in its accession. And we haven’t even talked about how its forcing NVIDIA (NASDAQ:NVDA) to do the same song and dance in the GPU market.
In the end, Advanced Micro Devices is no longer the semiconductor whipping boy. Its products are winning over users and that’s making big tech scared. That’s wonderful news for AMD stock investors.
At the time of writing, Aaron Levitt did not hold a position in any stock mentioned.