It has been a challenging year for many American chipmakers, but you’d never know it from the performance of Advanced Micro Devices (NASDAQ:AMD). Despite being the underdog in the fiercely competitive CPU and GPU markets, despite the collapse last fall of the crypto currency market and despite the trade war between the U.S. and China, AMD stock has been a top performer in 2019.
After another 2.21% pop to close at $38.35 on Thursday — its highest level in 13 years — Advanced Micro Devices stock is now up nearly 108% for the year.
However, if you haven’t yet got in on the AMD action, now probably isn’t the time to do so.
AMD Stock Pops on EPYC Server News
Advanced Micro Devices has been making real progress against Intel (NASDAQ:INTC) in the PC processor market. In Q3, the company hit one third of the global marketshare for computer CPUs for the first time in 12 years. AMD also scored a symbolic victory over Intel when Microsoft (NASDAQ:MSFT) announced it was using a custom AMD Ryzen chip in its new 15-inch Surface Laptop 3.
But what triggered this week’s pop in AMD stock was on the server front — another area where AMD is making inroads against Intel’s domination.
On Nov. 12, it was announced that Chinese internet giant Tencent (OTCMKTS:TCEHY) is now using AMD EPYC servers for its cloud services. The move to the AMD servers will reportedly save Tencent big money. AMD says that the EPYC servers deployed at Tencent are 50% more energy efficient under maximum load, while delivering overall performance gains of 35%. With 1.1 million servers already in operation and rapid growth, the Tencent announcement has been enough to propel the price of AMD stock over 5% since the news hit.
What Does 2020 Look Like for AMD?
A lot of things have been going AMD’s way in 2019, helping the company to bounce back from last year’s crypto-collapse shock. When the bottom of that market fell out, AMD stock dropped 47% in just five weeks.
However, a repeat of 2019’s triple-digit growth doesn’t seem likely. In fact, among the 33 analysts polled by CNN Business, the consensus for this high-flying tech stock is “hold” with a median 12-month price target of $35 — a downside of 8.7%. Why the pessimism?
First, that massive growth in AMD’s stock price in 2019 has in large part been recovery from the spectacular collapse last year. With AMD performing so well this year, continued growth will be tougher to justify.
Intel will make that job more difficult for AMD. Advanced Micro Devices has gained marketshare against Intel because of compelling chip design; however, Intel has also suffered chip shortages this year that has led to some PC manufacturers choosing AMD instead. Intel announced it is ramping up production capacity by 25% in 2020 to address that shortfall. In addition, Intel’s new 10nm chips are now shipping in volume.
In other words, AMD was able to take full advantage of Intel’s weaknesses in 2019, but next year, the battle for PC processor supremacy is expected to be a tougher one.
Intel is also set to play spoiler in the graphics card market. AMD has been wresting marketshare from Nvidia (NASDAQ:NVDA) in 2019. In the third quarter, the company shipped more video cards than Nvidia for the first time since 2014. Nvidia is fighting back with new “Super” versions of its card and price-cutting, so expect 2020 to see an epic battle between the two. Intel comes into play in 2020 because for the first time, the company will release a discrete graphics card — the Intel Xe.
That means next year, AMD will be taking on both Nvidia and Intel in the battle for graphic card marketshare.
This year has been a great year for Advanced Micro Devices. If you bought AMD stock after the 2018 disaster, you are sitting on a very nice gain. But the factors that helped propel AMD this year won’t necessarily be in play next year, and a re-invigorated Intel is set to make things tougher for Advanced Micro Devices on multiple fronts.
So don’t buy AMD stock now expecting next year to be a repeat performance.
As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.