Here’s How Red-Hot Advanced Micro Devices Stock Just Got Hotter

Advanced Micro Devices Stock (NASDAQ:AMD) is a solid performing stock on the Nasdaq exchange. And even after rewarding its loyal investors, AMD stock is getting hotter. The company launched a key new product in the GPU space. Even though Intel (NASDAQ:INTC) aggressively cutting chip prices to compete with AMD, AMD still has an edge.

Here's How the Red-Hot Advanced Micro Devices Stock Just Got Hotter
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Intel cut prices on its Cascade Lake CPU last month, which suggests the giant is facing mounting pressure from AMD in the server market. Intel’s price cuts are not trivial: its flagship Core i9-10980XE will retail at $979. This price is sharply below the pricing of its previous generation 9980XE product priced at $1,979. Prices on other i9-related chips have been halved. Although Intel will face profit margin declines, revenue could increase.

AMD EPYC a Winner

AMD’s EPYC CPU has technological advancements that Intel cannot match. EPYC’s infinity fabric facilitates data and control transmission across all linked components. So, having more associativity and more cache, plus a doubled bus width of 512-bit gives AMD an advantage. This improves scalability, lower latency, and efficiency. Getting an overall 27% efficiency gain will save data centers on the power bill while offering more performance to customers.

Enterprise customers are slowly opting for EPYC-powered servers over Xeon-powered ones. So, if AMD wins more business and keeps prices steady, expect its profit margins and revenue to grow steadily. This will happen over the next few years, too, because Intel does not have an answer to AMD’s technology.

GPU Launch

On Nov. 19, AMD launched the world’s first 7nm professional PC workstation graphics card. The W5700 workstation graphics card has GDDR6 memory that handles large datasets which are central to machine learning. By supporting PCI 4.0, professionals may render designs in a virtual reality environment with ease.

AMD needed a compelling professional GPU solution to counter Nvidia (NASDAQ:NVDA). And since the Radeon Pro is powered by the AMD RDNA architecture, it will have 1.25 times instructions-per-clock compared to the previous generation. Customers may opt for AMD over Nvidia’s GPU. The card retails for just $799.

Multiple Product Launches at SC19

At SC19 in Denver, AMD announced several products in HPC. It announced two new instances with Amazon’s (NASDAQ:AMZN) AWS. With the continued growing demand from AWS, AMD will likely reap the rewards with the new product. The EC2 Compute-Optimized instances, C5a and C5ad, will offer customers plenty of performance. This includes batch processing, distributed analysis, and web applications. Previously, Gigabyte launched five new servers that will use AMD’s second-generation EPYC.

Microsoft’s (NASDAQ:MSFT) Azure will offer high-performance computing solutions that use AMD EPYC 7742 processor. These virtual machines will give customers supercomputer performance with 200Gbps InfiniBand.

Valuation and Your Takeaway on AMD Stock

One analyst dared to downgrade AMD stock (per TipRanks) by setting a $36 price target. Still, the overall price target average is $36.68. Analysts are skeptical that the AMD stock price will hold the $40 level. Valuations continue to limit the stock’s upside potential. At a PEG of over 5 times, AMD has no margin of safety. It may be the technology leader in the server space, has products on par with Nvidia in GPUs, and has better desktop chips than Intel.

This is still not enough.

AMD needs to continue to balance applying its operating cash flow to debt repayments against investments back in the business. Intel has a massive R&D and marketing budget. It is behind technologically but it may lower prices to drive sales. And although AMD will have a hard time taking Intel’s market share, the company will eventually reach a tipping point. When profits get bigger, the marketing spending will increase exponentially. By then, Advanced Micro Devices stock will trade at higher levels than where it is today.

Disclosure: As of this writing, the author did not hold a position in any of the aforementioned securities.

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