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This Is How AMD Stock Will Beat Investor Expectations

Strong gaming demand will lift CPU and graphics cards sales, helping AMD's revenues

For the last few months, Advanced Micro Devices (NASDAQ:AMD) failed to outperform Nvidia (NASDAQ:NVDA) on the markets. But AMD stock is still a rewarding holding compared to Intel (NASDAQ:INTC).

What to Expect From AMD Stock Ahead of July's Earnings Report
Source: Fabio Alcini / Shutterstock.com

Investors are betting correctly that Nvidia’s growth prospects in graphics processing cloud computing will lift its revenue. Intel’s desktop chip refresh will keep the blue-chip giant relevant but AMD’s Ryzen series continues to grow a larger user base.

For now, AMD is stuck in a narrow trading range until its next quarterly earnings report. It posted its last report on April 28. What will AMD’s results look like during the Covid-19 led economic slowdown in the period?

Strong Gaming Demand to Lift AMD Stock

Electronic Arts’ (NASDAQ:EA) strong stock performance suggests that gaming demand is hotter than ever. More consumers stayed at home for much of 2020.

With nothing else to do for entertainment, game sales rose. If console sales rose, AMD’s semi-custom revenue would improve in the period. Still, chances are high that consumers held off buying a second or alternative console.

Peer comparison of AMD stock
Click to Enlarge
Source: https://www.stockrover.com/

As the table shows, AMD trails its peers on value, while its margin of safety is only 7%. That might explain why the stock is stuck in a trading range.

No one will want to invest in the current console platform when a new Xbox and PlayStation are available later this year. With Microsoft (NASDAQ:MSFT) selecting AMD to power the newest Xbox, the refresh will add plenty of new revenue.

In the PC market, where consumers often upgrade graphics processing unit (GPU) to support new game titles, AMD is still behind Nvidia. Sales of its previous generation Vega in 2017 started slowly. But the current generation GPU, Navi, may see better adoption rates.

AMD may meet the high demand expectations for Navi. When Vega first launched, cryptocurrency miners bought the most available GPUs. This time, AMD introduced RDNA architecture.

On paper, RDNA looks great. Its strong performance and power efficiency is a result of 7nm processing. Previous chips used 14nm processors. GDDR6 memory is faster, while Navi supports PCI Express 4.0. These specifications will enticing gamers to buy an AMD-branded GPU.

Announcements

On June 16, AMD unveiled three new desktop processors. The company added the Ryzen 9 3900XT, Ryzen 7 3800XT, and Ryzen 5 3600XT to its line-up of third-generation Ryzen desktop chips.

AMD priced these products at $499, $399, and $249, respectively. The “XT” branding represents maximizing performance under any workload. At the high-end price, customers may hold off buying these chips for now. Instead, they may wait for the Ryzen 4 release, which is a 5nm process.

Holding off on buying the XT would save consumers money. They would get the last-generation chip at a lower price. Conversely, buying an Intel chip instead is another option. But Intel’s 10nm chips may suffer from poor yield, limiting its availability.

The company’s CFO admitted the lower profitability of 10nm and the low yields. Despite Intel’s issues, this benchmark showed that Intel’s Core i7-1165G7, at 10nm, ran up to 30% faster than AMD’s Ryzen 7 4800U, a 7nm CPU, in single-threaded workloads.

AMD’s Ryzen 3900XT has 12 cores and 24 threads:

MODEL CORES/ BOOST5/ BASE6 FREQUENCY (GHZ) TOTAL CACHE (MB) TDP7 (WATTS) Platform SEP8 (USD) EXPECTED AVAILABILITY
THREADS
AMD Ryzen™ 9 3900XT 24-Dec Up to 4.7/3.8 70 105 AM4 $499 7-Jul-20
AMD Ryzen™ 7 3800XT 16-Aug Up to 4.7/3.9 36 105 AM4 $399 7-Jul-20
AMD Ryzen™ 5 3600XT 12-Jun Up to 4.5/3.8 35 95 AM4 $249 7-Jul-20

Data courtesy of AMD

For videographers and Youtube channel owners, the high core count will offer high video processing performance. Therefore, investors may expect good sales numbers for these CPUs in the quarter ahead.

Your Takeaway

AMD shares are ready to rocket higher. To do that, it needs to report a faster pace of chip sales and Navi GPU sales that beat expectations. Investors may model such a scenario here and come up with a price target in the $65.00 range.

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


Article printed from InvestorPlace Media, https://investorplace.com/2020/07/this-is-how-amd-stock-will-beat-investor-expectations/.

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