July is a potential positive inflection point for Advanced Micro Devices (NASDAQ:AMD). With its shares spending much of the last three months at around $55, investors are waiting for the company to post quarterly earnings that justify a market capitalization in the $65 billion range. More importantly, AMD stock might get a positive lift if it forecasts a recovery later this year.
AMD has some obvious catalysts ahead, while the more-telling ones come from its PC and server business.
Strong Gaming Demand
Strong demand for gaming titles during the pandemic that started in March should boost AMD’s graphics card (GPU) and desktop gaming chips. Already, Electronic Arts (NASDAQ:EA), Take-Two Interactive (NASDAQ:TTWO), and Activision (NASDAQ:ATVI) traded at 52-week highs recently. Gamers had no choice but to add new titles and spend on in-game virtual goods during the lock-down.
Nvidia (NASDAQ:NVDA) already reported the benefits of gameplay surging in its first quarter 2021 report. EVP and CFO Colette Kress said that “Globally, we have seen 50% rise in gaming hours played on our GeForce platform, driven both by more people playing and more gameplay per user.”
Investors may infer that AMD’s Radeon GPUs will also benefit from the same trend. Even though its device driver quality, GPU performance, and unfavorable pricing will limit an increase in demand, sales should still grow.
Disruptor Among Disruptors
At its investor presentation, AMD sees itself as a leader in high-performance computing. It has disruptive CPU and GPU solutions, a growing customer base, and prove it could execute on product launches. Still, AMD reported a market share drop in discrete graphics (slide 54, below). This dropped from 33.1% in 2017 to 26.6% in 2019. In the next quarter, AMD will give an update on the demand for its 7nm Radeon RX 5000 series desktop and mobile GPUs.
AMD launched the 7nm RDNA “NAVI 1X” product in late last year. The RDNA 2 “NAVI 2X” on 7nm will follow. By late 2021, RDNA 3 “NAVI 3X” will show even greater promise than its predecessors. This could help it take back market share from Nvidia.
Intel (NASDAQ:INTC) does not have a good discrete GPU and CPU combination for laptops. It continues to rely on an under-performing integrated GPU that is only good enough for office work. To gain market share in the notebook space, AMD needs Dell (NYSE:DELL), Lenovo, and HP Inc. (NYSE:HPQ) showcasing AMD solutions to customers. For now, Intel enjoys the benefits of getting promoted first to customers. In the commercial space, AMD’s commercial unit market share continues to grow steadily. It started at 7% in 2017 and grew modestly to 11% in 2019.
So, AMD is still a favorite in the do-it-yourself community but not the mainstream. This will slow its market share growth for now.
On May 2020, AMD announced the Radeon Pro VII. It dubs the product as “the new standard for complex double-precision simulations and design validation.” Offering up to 6.5 TFLOPS in double-precision performance, AMD’s GPU will become an increasingly valuable offering for those who demand heavy computing.
In data center, AMD forecasts having 150 or more instances in the cloud market. Its deployments doubled last year in 2019. It counts Microsoft (NASDAQ:MSFT) Azure, Amazon (NASDAQ:AMZN) AWS, Google (NASDAQ:GOOG), and Twitter (NASDAQ:TWTR) as its clients.
Fair Value on AMD Stock
Based on its future cash flow, simplywall.st thinks the AMD stock trades at close to its $48.96 fair value. Analysts are slightly more bullish, with an average price target of $56.53 (according to TipRanks).
AMD could move any direction between now and when it reports quarterly earnings. Investors unsure of how things play out next should sit this one out. Those who’ve held the stock since the single digits should continue to do so.
As of this writing, the author did not hold a position in any of the aforementioned securities.
Chris Lau, contributing author for InvestorPlace.com and numerous other financial sites. Chris has over 20 years of investing experience in the stock market and runs the Do-It-Yourself Value Investing Marketplace on Seeking Alpha. He shares his stock picks so readers get original insight that helps improve investment returns.