Advanced Micro Devices (NYSE:AMD) was one of the great companies and stock picks of the 2010s.
That’s not just because I picked them in 2014 right after Dr. Lisa Su became CEO.
AMD has fully justified analyst love, rising from a low of under $2 per share to a high of almost $59 per share, right before the coronavirus tanked the market. Despite falling like everything else, AMD shares opened for trade April 8 at $48, very close to where they started the year.
This means the reason you buy AMD stock has changed. A year ago, you would have bought it for capital gains, and its price is up 68% over the last year. Today you buy it for capital preservation.
AMD can see to the other side of the pandemic.
AMD Stock Is the Quality Choice
At its analyst day, held before the virus closed everything down, Dr. Su emphasized AMD’s leadership in High Performance Computing and in “disruptive” applications like artificial intelligence.
What this means is that AMD has the fastest chips. It also makes graphics processors and microprocessors. Leadership on the high end of the market gives AMD pricing power in client PCs. Its presence in graphics, even if it’s second there to Nvidia (NASDAQ:NVDA), guarantees AMD a place in the cloud.
AMD chips are fabricated by Taiwan Semiconductor (NYSE:TSM), whose factories lead in delivering circuits with lines just 7 nanometers (nm) apart, and plans to deliver 5 nm parts next year. This is the heart of Moore’s Law, which posited continuous exponential growth based on packing more circuits onto a chip.
There is a theoretical limit to Moore’s Law, as Gordon Moore laid it out in the mid-60s. But there are also ways around it. You can bring memory and processing together. You can use the same parallel processing that makes the cloud possible. You can increase clock speeds or get rid of the clock entirely.
Confidence in Dr. Su is based in part on her team’s ability to execute on these kinds of ideas. Hardware is software, and design in the 2020s will count for more than just having a fabulous team.
The Intel Threat
Hanging over AMD is always the “threat” of Intel (NASDAQ:INTC). It’s four times bigger by market cap, 10 times bigger by sales volume, and it runs its own manufacturing plants.
Intel is constantly threatening to take AMD down. But analysts have become accustomed to dismissing its threats as “cunning plans,” a 30 year old TV trope.
The latest benchmark tests indicate that, while Intel is improving, AMD is still on top. But there are also promising reports about AMD’s coming graphics processors.
Ultimately, it’s the combination of high-end processing and graphics that gives AMD its market power. Demand for both continues to increase, as the cloud reaches its tentacles toward the network edge. Artificial intelligence applications demand an instant response to sensor data. The growth of what I have called the Machine Internet assures Intel, AMD, and Nvidia of a bright future.
The Bottom Line
It’s interesting that two leading lights in semiconductors today, Dr. Su and Nvidia CEO Jensen Huang, were born just a few miles apart in the old Taiwanese capital of Tainan. (Both moved to the U.S. in the early 1970s.)
It’s a great piece of trivia to know and tell. But that’s all it is. What matters is both companies have a long runway ahead of them.
Of the two, I prefer Nvidia. AMD remains just marginally profitable, Nvidia phenomenally so. But AMD will get through to the other side of the current crisis, which makes it well worth owning.
Dana Blankenhorn has been a financial and technology journalist since 1978. His latest book is Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, essays on technology available at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing he owned shares in NVDA.
