The trading action in Advanced Micro Devices, Inc. (NASDAQ:AMD) ahead of its quarterly earnings report is almost predictable. If the stock rallies ahead of results, the market “priced in” any of the good news in the share price. Any small miss or light forecast will send the stock lower. Conversely, if AMD stock does not trade higher in the weeks before quarterly results, it has a chance of rallying on any mildly good news.
So, when AMD reports quarterly earnings later this month, how will the stock move this time?
AMD already announced its new product release in the short-term. GlobalFoundries is moving its manufacturing to 7 nanometer, while Intel struggles with its 10nm process. It is of little surprise that AMD will continue to grow its market share in the competitive desktop computing space. As Advanced Micro Devices and its partners roll out Ryzen for mobile, consumers will have more confidence choosing AMD over Intel. AMD offers better pricing for the performance offered, compared to Intel. But for now, Intel still has an advantage with a bigger marketing budget and established brand and more retail channels.
EPYC Sales to Accelerate, Lifting AMD Stock
Advanced Micro Devices announced many partners offering EPYC-powered solutions. These include Cisco Systems, Inc. (NASDAQ:CSCO), Dell Computers and Hewlett Packard Enterprise Company (NYSE:HPE). HP Inc. (NYSE:HPQ) will power its DL325 Gen 10 servers with EPYC processors.
AMD does not need that much ambition in growing its data center market share. If it grows its market share to 10% in the next 2-3 years, this would bring in $1.8 billion in revenue annually. That is because the TAM (total addressable market) of the data center market is approximately $18 billion.
Progress with Polaris, Vega GPU
With no big refresh coming from NVIDIA Corporation (NASDAQ:NVDA) with its line of GPUs, AMD could re-ignite sales in this space. Rumors swirled in April that the company may release mobile RX 500X and 560X series Polaris cards for laptops. On July 10, AMD announced a new series of graphics cards, dubbed “Polaris 30”.
The timing of the Polaris 30 launch could not be better. Previously, consumers could not even get a Polaris card because cryptocurrency miners would bid for them at up to triple the retail price. Now that the bubble in bitcoin is popping, AMD may start selling this new Polaris variant to its loyal fan base.
This GPU refresh has a number of updates. The chip is manufactured under the 12nm process, leading to better performance and lower power consumption. Enthusiasts will enjoy a performance increase of around 20% with these cards.
Looking ahead, Advanced Micro Devices is set to launch the “Navi” architecture to target the mid-range market. This can only help AMD stock.
Valuation
Advanced Micro Devices’ valuation is admittedly stretched at a 26.8 forward price-to-earnings multiple, yet AMD stock is still cheaper than that of NVIDIA’s, whose forward P/E multiple is 32. Intel Corporation (NASDAQ:INTC) is still the better investment option for income investors or for value investors seeking a greater margin of safety. Intel stock trades at a forward P/E ratio of just 12.6, while shareholders earn a dividend yielding 2.3%.
On Finbox.io, the Dividend Discount: Multi-Stage model suggests that Intel’s fair value is $60. Since AMD’s stock does not pay a dividend, investors may use a 5-year DCF Revenue Exit model which would value the company at around $18 a share.
Bottom Line on AMD Stock
The heightening volatility in stock markets, combined with AMD’s pre-earnings rally, suggests another post-earnings selloff is in the cards.
Yet, due to the strong fundamentals of AMD, any big dip in the stock creates an entry point for investors who missed out on the 60% year-to-date gains.
As of this writing, Chris Lau did not hold a position in any of the aforementioned securities.
