These days, Advanced Micro Devices, Inc. (NASDAQ:AMD) stock has behaved like a rollercoaster. Last Tuesday, investors were not confident ahead of the fourth quarter print, with shares slipping 3% in trading approaching the showcase. The following day, on back of a performance that saw the chip giant hit profitability (which the team had yet to see in the last seven years), shares surged almost 7%. Yet, since last Wednesday, shares have weakened a whopping 16% in value.
Should investors trust revenue that shot up from $1.11 billion this time last year to a $1.48 billion? Bulls will argue that crypto craze has investors geared up to buy the boon- one that has lit a match under graphics cards and computer sales for AMD. Yet, some analysts do not trust the short-term gains from a cryptocurrency fever that could die down as fast as it skyrocketed. With chip maker rivalry fresh on AMD’s heels for every positive stride it makes and steep valuation, is this chip worth the bet?
Here are three reasons we just do not trust Advanced Micro Devices- at least, not now:
- AMD says to pay no attention to the crypto bubble ready to pop behind the curtain. The company’s fourth quarter revenue this time last year leveled at $1.11 billion, soaring to $1.48 billion by the last quarter of 2017. Keep in mind, the company’s computing and graphics business soared 60% year-over-year to reap $958 million. This all sounds good- until you factor in just how much the chip giant’s success hinges upon cryptomania. CEO Dr. Lisa Su acknowledges cryptocurrency mining has been a positive for AMD’s empire. The company attributes a whopping one third of the gains seen in computing and graphics rocketing thanks to the crypto match that lit the fire. Yet, last Friday, Bitcoin sank to its lowest point in a period of two months after a holiday surge to historic peaks of $20,000. This suggests an instability and volatility to a huge share driver for the chip giant- one to watch out. Just where does Bitcoin’s valuation float now? Under $8,000. This has prompted a general pullback in the crypto-verse, with more than $60 billion scrubbed clean in valuation in the span of one day. This includes the Ethereum blockchain, which has been a beneficial short-term plus for AMD GPU sales. Stringent regulation around the world, from China to India has investors gritting their teeth in fear of what a heavy-handed government could mean for the use of digital currencies. Lows for crypto translate to an impact to AMD. Let the volatility games begin.
- The competition that is delivering stellar tech creations and outperforming the company on cash. Only just on this last earnings report did AMD at last reach into positive cash flow. Even though the new year looks like the company can keep this momentum going, there are other players in the game- including Nvidia, a cash cow that has cutting-edge platforms like the Drive PX series. With Nvidia just out today tapping a new partner to branch into full-fledged self-driving system production, AMD’s success needs to be measured. True, rival Intel may have taken a hit with the Spectre/Meltdown bugs, but there are other chip players chasing rule of the leaderboard. A competitor like Samsung just today is priming custom chips for mining- so even should the crypto boom rise back up again in its volatile nature, Samsung is gunning for AMD.
- Expensive valuation. This is a company that saw four decades escape without holding onto earnings. Again, though crypto fever surely was a good cushion for the semiconductor company, this is another key reason why it matters that a quarter that finally saw profitability relied on an oscillating source. Free cash flow has not been a strong point for the company, and yet shareholders shell out as much as twelve and a half billion dollars. The valuation seems overshot and as crypto ghosts race through the market- the stock could surely weaken.
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.