World News – FI – AMD Stock: Don’t settle for 200% of its earnings


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Earlier this week, Steam, a video game platform, released its monthly hardware survey Among Steam users, Advanced Micro Devices (NASDAQ: AMD) continued to steal market share from Intel (NASDAQ : INTC) in place in central processing unit (CPU) chips AMD stock rose 3% on news, adding to its 200% gains over the past 12 months

But AMD investors shouldn’t be congratulating themselves just yet As the latest RTX 30 Series chips from Nvidia (NASDAQ: NVDA) appear poised to take the high-end gaming space by storm, the AMD’s graphics processing units (GPUs) will struggle to grow.Instead, AMD will have to prove itself in the much larger data center segment (which uses CPU chips) dominated by Intel If it can doing so, stocks could go up by 85% And if that failed, holders of AMD stocks could suffer losses of 30% or more Investors should not be negligent

Earlier this summer, I noted that investors might regret selling AMD shares too soon. Indeed, in July, AMD gained access to 7nm chip-making technology, an advanced process that neither Intel nor Nvidia could match

And the technology has since proven itself Today, AMD chips are both faster and more energy efficient than 12nm versions of its competitors In the third quarter, AMD stock was up 56%, the company that captured a third of the processor market for the first time in over a decade

In the hyper-competitive world of computer processors, however, no battle is ever totally won In September, Nvidia surprised the world by announcing that its new RTX 3080 GPU would use Samsung’s 8nm production process. would make cards twice as fast as its predecessor, the RTX 2080 and better than most 7nm AMD GPUs

Nvidia also priced the units at just $ 699, which resulted in a massive run on pre-orders (The company later apologized for the out-of-stock)

Nvidia’s resurgence poses huge problem for AMD Faced with hyper-competitive GPU rival, AMD should fight elsewhere

Intel sets slower target for AMD Due to production delays, the legacy chipmaker has struggled to bring 10nm technology to market Its 7nm response to AMD and Nvidia technologies will now only be ready ‘at least 2022 At this point, AMD could already have a 5nm chip

Delays mark rare stumble for Intel The legacy chipmaker has been a consistent player, making it into the top 15% of companies I watch on its 10-year return on capital (ROC) Investors could trace the company’s troubles back to 2018, when Intel fired its longtime CEO Brian Krzanich for a ‘consensual relationship’ with an employee Or the delays could have been due to bad luck – Even though Intel fired its engineering director Murthy Renduchintala over the 7nm fiasco, chip miniaturization has always been fraught with technological pitfalls

Either way, Intel’s stumbles give AMD a once-in-ten-year opening in data centers, a sector three times the size of gaming

The demand for data centers has exploded in recent years thanks to the growth of cloud computing Yet in 2019, AMD held only 8% of the market for X86 servers But that could change because of the woes of Intel With its 7nm « Zen 2 » chips, AMD could finally take the lead of the incumbent operator And even when Intel finally releases its 7nm chips in 2022, AMD should have « Genoa », its 5nm chips, ready

« The high growth, high margin market for data center servers and cloud platforms is a lucrative target, » said S&P Global, a business intelligence company, « owned almost entirely by Intel » If AMD succeeds in gaining market share in market servers, its profit margins could increase Intel is currently gaining a superb 35 EBIT margin of 0% compared to AMD’s measly 9 5% (Investors should note that Intel is also running a fab , so we cannot compare the EBITDA margins)

My DCF estimates aren’t just for intellectual curiosity – they represent the wide range of results AMD could face Remember, AMD stock was languishing at $ 2.00 in early 2016 before the boom in l ‘cryptocurrency mining won’t skyrocket GPU prices

It all depends on Intel If the legacy chipmaker continues to struggle, AMD stock looks set to take off – don’t be surprised if the company captures> 50% of the market share. ex-chipmaker can build 7nm tech faster than expected, AMD shareholders should jump ship quickly In chipmaking, it’s all about technology

At the time of publication, Tom Yeung had (neither directly nor indirectly) any position on any of the titles mentioned in this article

Tom Yeung, CFA, is a registered investment advisor whose mission is to bring simplicity to the world of investing

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News from around the world – FI – AMD Stock: Don’t settle for 200% of its earnings



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