When it comes to a carpe diem mentality, is it smart to invest in Advanced Micro Devices, Inc. (NASDAQ:AMD) or is it time to steer clear of this chip making giant? Shares have risen after making up for the gap from its past quarterly print released at the start of May, where gross margins shortchanged expectation. Investors were sent scrambling, dropping the stock like a hot potato and sending it crashing 25%.
Yet, was it worth the clatter and commotion? After all, the adjusted gross margin fell merely 1% on a quarter-to-quarter dip. From an investment standpoint, even AMD enthusiasts do not like to see soft margins in sight, and the weak guidance justified the loss of confidence at the time. Beyond a temporary guidance shortfall, let’s explore three reasons why it is time to jump ship on this chip giant:
- In the scheme of the Wall Street game, shareholders play the odds and know when to gamble on skepticism swirling as stock and when it is a strategic time to back off, hedging the bet. In the great AMD oversell that ensued after first quarter earnings, if street-wise investors seized upon the weakness, there was an excellent buying opportunity at hand. Present-day, shares have more than recovered. AMD enthusiasts will argue this bodes well for the stock. But just as a stock can be oversold in the heat of the apprehensive moment, AMD now ventures to the other side of the double-edged sword, with confidence shooting up as quickly as it has placing upside potential in jeopardy. Is there still the same argument to buy when the weakness no longer lingers to reap profits at the expense of the bears? Meanwhile, with an underwhelming reveal at Analysts’ Day with regards to EPS expectations for 2020, AMD may be losing steam soon enough.
- This begs the question of the longevity of GPU demand. Part of the root of AMD’s rally last week stems from the cryptocurrency market, with investors taking the bite. Miners of the likes of Ethereum and Bitcoin are offering a solid short-term boost, with AMD’s graphics cards from the RX 570 to the RX 580 selling out across the retail-oriented web. Yet, it becomes a query of sustainability, and firm Goldman Sachs believes the numbers down the road are not likely to remain as favorable. Short-term the hype of cryptocurrency might bolster shares, but simply because cryptocurrency costs are on the acceleration does not necessarily indicate equal GPU and ASP growth. The past does not always dictate how a stock’s prospects play out in the future, but it certainly bears mentioning that in the last crypto currency price rise, GPU demand saw short-term gains that ultimately did not stand the test of time. Therefore, to just bank on cryptocurrency to carry AMD to the top of the leaderboard is not enough, even if the market dynamics are different this time around. It’s a wait-and-see approach at the end of the day.
- In a chip-maker-eat-chip-maker world, can AMD really stack up against its competitors? What AMD lacks in Nvidia’s sharp edge comes down to advantages in gaming, strength in data center, and savvy exploration in a key market of the future: virtual reality. One of the staples of concern for the margin outlook-spurred sell-off could be that other sharks are boasting stronger margins. Even if the decline in a quarterly context may not have seemed as sharp, the risk factor comes into play when assessing the rivalry arena, where giants like Nvidia and Intel are bringing their A game to the table to rule the chip making court. A solidified margin leads to a profitable pathway down the line, and with the technological landscape as fierce as it is these days, AMD cannot risk any more slips. AMD needs for its Vega launch to outperform its Ryzen launch to oust its competitors, and likewise needs to step up its R&D game to keep its product line fresh, innovative, and up for a true tech fight.