On January 24, Cisco (NASDAQ:CSCO) announced that Advanced Micro Devices (NASDAQ:AMD) CEO Lisa Su had been appointed to the company’s board of directors. Does the appointment mean anything for AMD stock?
While I can’t say what, if anything, the appointment means for Advanced Micro Devices shareholders in the short term, I can take a look at the pros and cons for the long run.
My first reaction when I read the news Su had been appointed to Cisco’s board was that it was a sign the two companies would be working more closely with each other in the future. While most of Cisco’s Unified Computing System (UCS) servers are equipped with Intel (NASDAQ:INTC), some have EPYC server chips.
The fact that Su’s now on Cisco’s board suggests it’s more than plausible that AMD’s EPYC Rome processors could find their way into more of Cisco’s data center products. AMD’s gain could be Intel’s loss.
“If Cisco brings out more product with AMD’s processors, they might find that more corporate customers are willing to adopt it,” Marc Fertik, vice president of technology solutions for Ace Computers, an AMD and Intel partner, said about the appointment.
A Closer Look
In the recent past, Su has suggested that the key to growing EPYC was for top-tier brands to adopt its EPYC chips. The fact that Cisco’s appointed her to the board is an indication the San Jose networking giant is serious about using more of AMD’s products.
It’s hard to see why investors wouldn’t view this as being good for both companies. After all, Su has led one of the tech industry’s best turnarounds of the 21st century. Last summer, rumors circulated that AMD’s CEO was going to bolt for the second in command job at IBM (NYSE:IBM), where Su once worked as Vice President of Semiconductor and Development.
In hindsight, we know this wasn’t true. Recently, IBM CEO Ginni Rometty announced that she would step down as chief executive in April, remaining as Executive Chairman until the end of 2020, at which point she’d retire from the company. Current IBM executive Arvind Krishna’s been named Rometty’s successor.
The second reason, and possibly a less obvious one why Su’s appointment is good for AMD, is that it implies the board views the company’s financial situation far more favorably than it was when Su took the top role in October 2014.
Two years ago, it’s doubtful Su would have considered joining the board of the $200 billion market cap with 53 times the free cash flow, but today, with its top- and bottom-line being stronger than they’ve ever been, the time seemed right for the CEO to broaden her horizons.
If you’re a CSCO shareholder, you ought to view this as very positive for its future stock price.
The Cons of Su Joining Cisco’s Board
Thinking back to last summer’s rumor about Su leaving for IBM, her appointment is only going to reignite speculation she’s planning on moving on from AMD in the future. However, unless Cisco CEO Chuck Robbins leaves or the company stumbles badly, it’s hard to imagine a scenario in which Su took the reins.
More important, AMD shareholders better hope that serving on Cisco’s board doesn’t distract the talented Su from the task at hand, which is to permanently overtake some of its larger peers.
As InvestorPlace contributor Vince Martin recently stated, AMD stock has gained 2,600% over the last four years, defying the skeptics.
“The core reason that AMD stock has gained is because the company has become a legitimate competitor across multiple semiconductor markets. Just a few years ago, AMD was a second-tier rival to Intel in personal computers with a decent business providing graphics chips for gaming consoles,” Martin wrote on Feb. 11.
Martin went on to discuss how AMD’s been unable to take data center market share from Intel despite the fact Intel’s execution in recent years has been abysmal.
Should Intel get its mojo back, AMD’s next four years won’t be nearly as rosy from a growth perspective. Shareholders better hope the AMD board’s tacit approval of Su serving on Cisco’s board won’t come back to bite them in the rear end.
As my colleague stated, now is not the time for AMD to falter given it trades at 43 times its 2020 consensus estimate. Any slip up at this point would be very bad for AMD stock.
The Bottom Line on AMD Stock
In mid-January, I suggested that anyone o AMD for the long haul, ought to consider buying more if it corrected into the high $30s. Since then, it’s gained more than 16% through February 14.
When it comes to AMD stock, I’m on the fence. I don’t think it’s a buy at these prices, but I don’t think you should sell, either. At least not as long as Su is running things.
As for Su’s appointment to Cisco’s board, I think the positives outweigh the negative. For AMD shareholders’ sake, I hope I’m right.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia.
At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.