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Stock Market Analysis

Should I Buy Advanced Micro Devices Stock?

Despite COVID-19 fears, chipmaker Advanced Micro Devices has been trading at close to all-time highs. Has the stock seen its best days or is it yet to peak?

In the unglamorous world of semiconductor manufacturing, only two businesses have managed to acquire household-name status, and Advanced Micro Devices (NASDAQ: AMD) is not one of them. As a producer of central processing units (CPUs), the company does not have the brand power of rival Intel (NASDAQ: INTC), nor does it dominate the market for graphics processing units (GPUs), as Nvidia (NASDAQ: NVDA) does. What AMD does well is steadily and consistently create high-quality products at a remarkable profit, despite operating under the shadow of some bigger and better-known players.

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Founded in 1969, AMD was an early Silicon Valley success story, growing from a modest start-up into a global technology powerhouse with thousands on its payroll. More recently, the company witnessed an impressive surge in 2018, driven partly by Intel’s difficulties in updating its manufacturing process. This unusually public slip-up on the part of its chipmaking nemesis allowed AMD to gain a manufacturing edge, and to profit from the positive press that followed. Ever since, AMD has been masterfully exploiting these external circumstances to project its brand as a worthy rival to the world’s most famous chip manufacturer.

The Bull Case For Advanced Micro Devices

In the past few years, AMD has seen its stock climb to dizzying new heights. At the end of 2019, for instance, the stock was up 150% from the year previous. This figure is doubly impressive considering the company is not some high-flying upstart but a venerable Silicon Valley giant that had just celebrated its 50th anniversary. Despite suffering during March’s coronavirus-driven sell-off, AMD has bounced back in recent weeks to comparable highs.

It’s impossible to argue the bull case for AMD without mentioning Intel, which dominates the microprocessor market. The extent to which AMD’s fate is linked with Intel’s can hardly be overstated — and might admittedly be off-putting for some prospective investors (see below) — but the smaller company’s growth continues to astonish. Over the past five years, Intel’s share of the CPU market has slipped from about 76% to 64%, while AMD’s has climbed from 23.4% to 36%. As it continues to undercut Intel on prices, AMD is also steadily improving the quality of its products. One could confidently predict that the market share will continue to tip in AMD’s favor.

Equally attractive to younger investors is the company’s social conscience. On April 17, President and CEO Lisa Su announced in response to the COVID-19 crisis that AMD will donate more than $1 million to organizations engaged in front line work, as well as “hundreds of thousands of masks” for medical professionals.

The Bear Case For Advanced Micro Devices

Competition remains a serious threat to AMD. The company’s epic struggle over CPU market share with Intel is a stirring David and Goliath story, yet the fact remains that AMD lacks the resources and brand power of its arch-rival. Any future Intel product that surpassed or even just matched AMD on quality, but beat it on price, would always have the edge. If a large part of AMD’s recent success can be attributed to the relative shortcomings of Intel, then the one thing AMD has to fear more than any other is a more streamlined and aggressive Intel.

Perhaps not more than any other. There is also the state of the economy. The ever-increasing potential for a long-term recession would not bode well for AMD, which has not thrived during any previous downturn. Some of AMD’s popularity comes from the obvious ambition of CEO Lisa Su, yet that ambition will appear hollow if AMD starts missing its quarterly targets, which are stretched pretty tight as it is.

Is Advanced Micro Devices A Chinese Company?

No, Advanced Micro Devices is an American company. In fact, it was founded in Silicon Valley in 1969, making it one of the first major computing companies in the US.

So, Should I Buy Advanced Micro Devices Stock?

Advanced Micro Devices is a solid, well-respected company that has enjoyed an unexpected bull run for more than four years. On top of that, AMD has done an admirable job of taking on chip-making giant Intel across a number of fronts, often successfully. However, the company’s newfound market share is by no means secure, and neither Intel’s position nor the economy as a whole help to inspire confidence about the precariousness of this position. In short, AMD looks a little too risky to recommend at this time.


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Jamie O'Donoghue
Jamie O'Donoghue
Jamie is a contributing writer for MyWallSt.