Advanced Micro Devices (NASDAQ:AMD) is a company that has been going from strength to strength in recent times. The company is the beneficiary of secular tailwinds such as “work from home” and the increased demand for gaming. However, the upward trajectory for AMD stock seems to have stalled. The stock seems to have difficulty getting past the $100 resistance level and has been consolidating from $74 to $94 since August.
I believe this consolidation is simply building momentum for AMD shares to head much higher. There has been an influx of good news lately such as blockbuster quarterly results, rave reviews for its flagship product and a game-changing acquisition.
With all of that in mind, let’s take a closer look at why AMD stock is due for a comeback.
Ryzen Success Will Continue to Power AMD Stock Higher
It wasn’t that long ago that AMD was playing second fiddle to Intel (NASDAQ:INTC) in the PC and laptop markets. AMD used to be the computer chip for cheap laptops, while the “Intel Inside” sticker was the symbol of quality. Times sure have changed since then.
Early this year, AMD finally overtook Intel in terms of market share in the desktop CPU for the first time in 15 years. According to PassMark Software’s Performance Test benchmarking tool, AMD has a 50.8% share of the Windows desktop CPU market compared to Intel’s 49.2%. This is mainly on the strength of the Ryzen series of CPUs. With the recently launched Ryzen 5000 series, AMD is poised to continue gaining market share. These products are so popular that the initial stock sold out within minutes.
The Ryzen series has been a massive success for AMD. The most advanced processor in Ryzen’s 4th generation is the Ryzen 9 5900X. This 12-core, 24-thread CPU has gotten rave reviews as it represents the largest generation-to-generation jump in performance in recent memory.
The new Ryzen performs well on both single-threaded and multi-threaded tasks. It also comes with the next generation of connection interface called PCle 4.0, a feature Intel has not yet implemented in its chips.
Techradar.com summarizes the superior strength of this chip in the following way:
“Intel and AMD have been battling it out for dominance across multi- and single-threaded performance for years. There was this unspoken rule that if you want strong multi-threaded performance ideal for creative and professional applications, you go with AMD. If you want one for playing the best PC games, on the other hand, Intel would have the best processor.
Now, thanks to the AMD Ryzen 9 5900X, it looks like AMD is coming out the ultimate winner.”
AMD Continues Consolidation Despite Impressive Financial Results
AMD’s latest financial results are incredibly impressive with Q4 2020 revenue up 53% to $3.2 billion compared to the $2.1 billion reported at the same time last year. AMD’s full-year 2020 revenue was $9.76 billion — much higher than the $6.73 billion reported in 2019.
Due to the company’s scale and operating leverage, the revenue increases flowed straight to the bottom line. In other words, AMD’s revenues increased at a much higher rate than subsequent expenses. The chip maker’s net income for Q4 2020 jumped nearly 10x year over year to $1.78 billion from $170 million in Q4 2019. AMD’s full-year 2020 net income was $2.49 billion — an astonishing 630% leap over the previous year’s results.
The increase in PC demand due to the novel coronavirus pandemic played a large role in these impressive results. Demand for computers has skyrocketed as people and businesses were forced to purchase equipment to work from home. The increased popularity of gaming has also increased demand for AMD’s products as the lockdowns have limited people’s entertainment options.
However, I believe that these increases won’t just be short-term boosts in revenue. Rather, I think they’ll ultimately represent long-term secular headwinds. Gaming and working from home (or at least a hybrid model) will be here to stay. Furthermore, as the boundaries between work and home continue to blur, there could be a chance for AMD to grab more market share from Intel, especially in the laptop market.
We might see more office laptops with an AMD Ryzen sticker instead of the familiar “Intel Inside.”
The Bottom Line on AMD
AMD stock is one of the best stocks to buy to take advantage of many secular trends in the market today. The company is slowly but surely gaining market share from Intel and could be the dominant player in the near future. With its proposed acquisition of Xilinx (NASDAQ:XLNX), AMD further strengthens its data center products. Combining AMD’s CPU with Xilinx’s FPGA and ACAP capabilities could be game changing.
With all of these factors considered, I see the consolidation in AMD as an opportunity to buy.
On the date of publication, Joseph Nograles did not have (either directly or indirectly) any positions in the securities mentioned in this article.
