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.

3 Reasons Why You Should Drop Advanced Micro Devices, Inc. (AMD) Shares

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:

  1. 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.
  2. 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.
  3. 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.

 

  • John Smhmoke

    Lamb, nice article but you omitted a few key incidents that has investor confidence sky high..
    EPYC.. At the launch of the EPYC chip a few weeks ago AMD confirmed the commitment from some pretty big names for their datacenter CPU:
    1) HP 2) super micro 3) lennovo 4) Microsoft 5) dropbox 6) Baidu
    just to name a few…. Keep in mind that the TAM for datacenter currently monopolized by intel is enormous, should AMD capture a measly 10% considering their current market share is 0% then we are looking at enormous revenue. The OEM announcements indicate that market share gains are coming..

    2) you also failed to mention the radeon instinct accelerators which when combined with EPYC will be very tough to beat. Intel makes cpu, NVDA makes gpu accelerators. AMD is about to combine both for the datacenter.

    3) Ryzen pro, HP has already committed.

  • Unknown

    Just so we are clear. You are telling people to sell AMD after the following has happened in the last month:

    1) AMD partners with Apple with its new product line up
    2) AMD partners Microsoft with their new console Xbox One X.
    3) AMD OEM partners with Dell/Alienware with exclusivity to threadripper
    4) AMD improves an already likely chance of an earnings beat by continuing to sell off of its mid-low tier GPUs
    5) AMD launches the world’s fastest & most secure CPU (EPYC). *Look it up since you clearly ignored it*
    6) AMD launches pro versions of their Ryzen for workbenches
    7) AMD launches Vega FE
    8) AMD taking away Intel’s marketshare with Ryzen

    And you think only Crypto was the reason AMD stock has been doing well?

    Your article isn’t just off base, but blatantly wrong. I wouldn’t of cared if you were bearish on AMD, or even gave credible reason to sell it. But you completely ignored FACTS. Do your homework if you expect to be taken seriously, but as it stands now SmarterAnalyst just another BS ‘stocknews’ source that will allow anyone to get paid to write.

    • Ricardo

      Or maybe she want shares from AMD at low price 🙂