Julie Lamb, Senior Editor

About the Author Julie Lamb, Senior Editor

Julie joined Smarter Analyst across the world- all the way from Louisville, Kentucky- where she graduated with a Bachelor of Arts in English with a focus on creative writing from the University of Louisville.

Advanced Micro Devices, Inc. (AMD): Not All Roads Lead To Profitability

Advanced Micro Devices, Inc. (NASDAQ:AMD) shares took a 24% decline once the chip giant posted earnings May 1st, nosediving on back of underwhelming gross margin guidance for the second quarter of 2017. Some analysts will argue and see this as a buying opportunity. Many on the Street continue to back the semi-conductor stock, believing this Wall Street player can do no wrong. Yet, can these optimistic AMD enthusiasts simply shut out the fact that the stock suffered its worst one-day loss in more than 12 years-time?

Is this chip giant a compelling investment, with its potential for rebound and hyped up product launches? There is a real pressing argument for the alternative: that this buzzed-about tech player is simply another water mirage, with investors foolishly drinking in when they should be pouring out before losses loom larger.

Let’s explore and dismantle the bull case for this popular stock:

  1. Guidance popped the optimism bubble. It must have taken investors for a wild ride of shock-and-less-than-awe considering so many releases were slated to hit this year that guidance was such a slap. The truth is the print was not a total flop. Yet, AMD investors have surrounded the stock with this sense of untouchable reverence, which has bolstered valuation of late. Then, suddenly, shareholders were forced to pay attention to that ‘man behind the curtain,’ sending the stock on a biting slump. Shares are since recovering- but be forewarned: what comes up must come down again. This may be the most dramatic warning for investors, but it certainly will not be the last. It means something that the AMD team has subdued expectations during a period that should have been a golden one beckoning in the era of the Ryzen releases.
  2. Lack of obvious passage towards profitability. Margins need to be much stronger for AMD to turn the profitability corner. The chip giant posted an adjusted loss of $0.04 per share this quarter, which while it was not the culprit for expectation shortcomings still is not yielding a gain. Is R&D spending escalating overboard? Clearly to design products like Ryzen, especially with gaming complaints trailing that the products could be improved, the expense is worthwhile. However, for AMD to truly compete in the chip maker arena, S&GA will also need to deescalate at some point, hitting $387 million this quarter- even greater than R&D at $266 million.
  3. Let the chips fall where they may- AMD faces cutthroat competition. With towering giant NVDA boasting a gross margin near twice AMD’s size and CEO Jensen Huang ready to fight back AMD’s Ryzen launch with some Radeon RX Vega graphics heat, this is a landscape that needs AMD’s Vega June launch to be robust. Ryzen expectations were meant to be high, and now clearly from the outlook, that is not so much the case. NVDA is already fiercely battling for the leaderboard, and the CEO has made it clear with its Volta-based Tesla V1-graphics card, NVDA is not planning on backing down from the top any time soon.

Investors will duke it out with any naysayers who dare to question the all great and powerful AMD. Yet, sometimes proceeding with a bit of caution, particularly when the shooting star of a stock trips up massively is not an unreasonable move forward. NVDA seems to be more stable, and should its graphics card knock AMD’s Ryzen enthusiasm out of the water, shares could fall again.

 

Disclaimer: The author has no position or business relationship in any stock or company mentioned in this article, and he has no plans to initiate. The author is not receiving compensation for this article expect from Smarter Analyst. This article is intended for informational and entertainment use only, and should not be construed as professional investment advice.

  • pcgposter

    The problem with AMD isn’t the quality of their products, but their lackluster marketing.

    On the professional GPU side, take any AMD GPU that goes for 200$, it will be better than Nvidia’s 300-400 equivalent, or on the same performance leve. Take any 400$ AMD GPU, and Nvidia’s equivalent will be 600-800$. This is not made up nonsense, go read reviews on Newegg, Yotube etc.

    In the gaming side, same story. While AMD hasn’t had many cards to directly compete with Nvidia’s top cards for the past 7 or so years and beat them flat out, its mid range cards and entry level cards do beat nvidia in price/performance or are on par.

    Nvidia is becoming like Apple. The company that can do no wrong. The company that sold a 3.5GB GPU VRAM with 512MB regular RAM to its userbase and claimed it was a “misscomunication” when advertising it as full 4GB. Imagine if Ferrari launched a car advertised as 300HP and it was actually 250 or something.

    This is a company who a few months ago launched a driver that almost bricked people’s cards. A company who has had notable lawsuits in the past about the quality of their products. A company whose older videocards get worse performance on the same games as never drivers come out for no explainable reason.

    Nvidia make performance products, that’s for sure. But their products have an aura of constant shadiness surrounding them. There’s something fundamentally rotten about this company and the way it does business. And just like intel, their products are woefully overpriced. This is not a company we want to monopolize the GPU market. It’s one of the reasons we back AMD and hope against hope for AMD.

    You want to end up paying 2500 for a GPU the same way Apple asks 2500$ for a laptop you can get for 1000-1500 from any other company?

    Moreover, on the CPU side of things, AMD once against has proven they can make a quality product that performs at a reasonable price. Intel offers the same performance at twice the cost. The launch was wobbly in some aspects, because it was a brand new architecture. So was Intel’s Core launch, yet the Core processors are remembered fondly today by many. Hardware doesn’t “just work” as any hipster slinging an iphone ipad imac and whatever the hell else would tell you, it takes time to integrate, and looking at AMD’s new CPU it’s not just unicorn and fairy dust promises, the thing is actually a beast. With time and developer support, it will only get better, because that’s how hardware works as software support catches up.

    Stop wanting AMD to fail. We need it to succeed. We need competition against Intel and NGreedia. The fact that they have half the earnings of Nvidia while battling against two giants is already impressive. If they can market their products better and show the world that Nvidia isn’t all that it’s cracked up to be, their revenue will only get higher from the GPU side as well.

  • Robert Marshall

    First off NVDA is Nvidia, and Nvidia could care less about Ryzen other than how sales of it might finance R&D for the GPU side of the house.

    What we really need to look at is the next year, not the next three months. Margins are a problem. They are a design problem that AMD will need to solve, I expect they will do a 1.5 gen launch at some point and start locking the multiplier on non-X series chips. This is vital as the cost to make a Ryzen 5 is the same as a Ryzen 7 1800x, all that changes are the number of enabled cores and the final sale price. So long as I can buy a 1700 and overclock it to the same speed of as a 1800x why spend the $200? AMD will fix that.
    The Ryzen 5 chips are being very well received, but what kind of OEM deals are getting these into commodity white boxes on the shelf at Best Buy? That is the volume segment that will make money.
    Next we have Whitehaven coming down the pipe and that is going to be nice, but not a high volume chip. It will do well in home servers and with certain professionals who need that kind of power, but with a quad channel DDR4 controller and expanded PCI-e channels it should also give us an idea of how the Ryzen server chip is doing and that is the big question. Those are the parts that will make AMD money. I see those as the big sale item, more power, lower heat and electrical usage.

    Then we have the semi-custom business. Xbox refresh anyone? And isn’t there a new PS4 on the market right now?

  • disqus_t3ZUVxuunv

    And again, no mention of Naples… You need to do some research if you are going to talk about the “bull case”. Everything you mentioned is pennies compared to what the server market could bring to AMD.

  • Darathu Chatbook

    What ? Did you write an article based on shit you read on yahoo news without understanding the why and the how ? Time to block this site.

  • Codeseven

    Have any other commenters ever thought of the possibility that these bloggers purposely look like idiots to get people with more knowledge and experience to painstakingly rebuttal their invalid points, and then research those points so they can sell the info or post it on another blog that will make them look better?