Why the Outlook of AMD Stock Has Changed

Well past the honeymoon phase, AMD stock must prove its worth to investors while rivals keep a leery eye on the tech firm

Recently, semiconductor firm Advanced Micro Devices (NASDAQ:AMD) made news that, in theory, should lift the AMD stock price. Staying true to its original brand values of robust computing power at affordable prices, the tech firm announced the new Radeon RX 5500 series of graphics processing units.

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Designed to compete against Nvidia’s (NASDAQ:NVDA) low-price range GTX 1650 cards, AMD’s new GPUs will come in two variants: the namesake RX 5500 will accommodate desktops while the RX 5500M GPUs will be optimized for laptop use. Better yet, AMD promises that the performance of the RX 5500 will be superior to  that of Nvidia’s GTX 1650 series.

Ordinarily, this announcement would bolster the case for Advanced Micro Devices stock. After all, the semiconductor firm has built a storied reputation on delivering tremendous value for gamers and users of high-end programs. With the RX 5500, AMD is  restoring the semi industry’s balance of power back to normal.

However, it’s important to point out that the RX 5500 is itself a response to Nvidia’s foray into discount GPUs.  Nvidia has historically operated in the premium GPU category. But under Advanced Micro CEO Dr. Lisa Su’s leadership, AMD boldly infringed on Nvidia’s top-tier territory. That audacity is one of the underlying factors behind the remarkable turnaround of the AMD stock price.

But with Nvidia now adopting AMD’s traditional game plan, NVDA gave Su and company a taste of their own medicine. Of course, Advanced Micro had to respond. But amid the hoopla surrounding the RX 5500, I couldn’t help but wonder: can AMD continue responding to the competition while still focusing on its own longer-term goals?

After thinking about that question,  I’m starting to have doubts about AMD stock.

Can AMD Stock Move Past the Honeymoon Phase?

A few years ago, the bull case for AMD stock clearly was based on contrarianism. At the time, the backers of Advanced Micro Devices stock argued that the shares were undervalued, given Su’s fresh vision for the company. Largely, this vision involved taking the fight to companies like Nvidia and Intel (NASDAQ:INTC).

It was time for AMD to get in people’s faces and shake things up. AMD has accomplished that goal, as Nvidia and Intel have looked out of sorts during the incredible rally of Advanced Micro Device stock.

But of course, nothing lasts forever. Now that AMD has earned the respect of its bigger rivals, the competition is no longer complacent.

Now that’s good news for Advanced Micro in terms of commanding the respect it craved. But on the flip side, it’s also bad news for AMD stock because now AMD is on everyone’s radar.

In other words, the honeymoon phase is over. Advanced Micro Devices stock has graduated from a speculative contrarian opportunity to an established name. From now on, AMD needs a fresh catalyst to hit new plateaus.

But what form will this catalyst take? It’s great that AMD will soon launch its Radeon RX 5500 series. Eventually, though, Nvidia will respond with its own innovation. Moreover, Intel is now moving into the GPU space.

A common counterargument supporting AMD stock is that the company enjoys technical dominance in GPU manufacturing. However, considering that Intel has invested nine times the amount of research and development dollars than AMD, that advantage may not last that long.

The Outlook Has Changed for Advanced Micro Devices Stock

Contrary to what many online commentators have stated regarding my stance on AMD stock, I don’t hate the company. Nor am I a paid shill for Intel or Nvidia.

I consider myself agnostic towards Advanced Micro Devices stock. Without any personal interest in the company, I have an unemotional perspective.

But I think it’s clear that we can’t treat AMD stock as if it were the same contrarian opportunity it once was. Both the Street and the semiconductor competition now have higher expectations for AMD. To the company’s credit, AMD is still fighting hard.

However, in the post-honeymoon phase, it’s no longer enough to be pugnacious. To keep investors excited, AMD must improve its outlook. Judging by the recent weakness of AMD stock price, it appears that investors aren’t very upbeat about the name. Because of that, I have my eyes set on other opportunities.

As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.


Article printed from InvestorPlace Media, https://investorplace.com/2019/10/why-the-outlook-of-amd-stock-has-changed/.

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