Is Advanced Micro Devices (AMD) All Smoke & Mirrors?

Overrated and not what it seems. That’s what blogger Okapi Research (OR) says Advanced Micro Devices (AMD) stock is. OR argues the bulls’ thesis that AMD will take hold of the market for datacenter CPU chips is misunderstood and wrong. The writer refers to AMD as being disadvantaged, with Intel dominating the market share at 92%.  He also argues that the past ten years have been soft for the PC market and the upgrade cycle for personal computers has become elongated. OR predicts AMD is approaching a flat to low single-digit decline in revenue due to a weak market and intense competition. (To watch AMD’s track record, click here)

“Unlike more focused peers Nvidia (NVDA) and Intel (INTC), AMD tries to be all things to all customers but it falls short in every product. AMD sells CPU & GPU chips to the PC market and now it wants to re-enter the datacenter market. However, AMD is sub-scale in all of its end-markets and as a result is competitively disadvantaged due to a lack of brand identity and an inferior R&D budget. As a result, AMD has relied on discounting its products to gain/maintain share. While AMD will likely grab some share in the server market, its products are currently tracking below expectations. Finally, AMD trades at a significant valuation premium to its peers. This high valuation multiple already prices in margin expansion and growth expectations. If the company fails to execute, the stock will be punished as a result,” OR explains.

The blogger goes on to explain that investors who want to put their money into the semiconductor industry should avoid AMD stock altogether and instead invest in Nvidia or Intel. When it comes to datacenter, ADM’s business only represents less than five percent of the total company revenue. OR points out that though datacenter only attributes for a small percentage, analysts see it as the greatest growth opportunity, which the blogger says is unrealistic.

“AMD has been trying to re-enter the datacenter market since early 2017, with little traction to show. Many analysts think an inflection point is around the corner due to a recent partnership announced with Dell (NYSE:DVMT). However, the data doesn’t support the notion of AMD gaining traction,” OR concluded.

In conclusion, OR suggests AMD has the worst balance sheet among its peers and that the current stock price is inexcusably high for the value. The street is torn when it comes to AMD stock. TipRanks reviewed ratings of 24 analysts who are keeping an eye on the chip market and out of the lot, 12 are bullish on AMD stock, 10 are sidelined and two are bearish. The consensus price target of $26.14 shows an upside of just about 15% from the stock’s current cost. (See AMD’s price targets and analyst ratings on TipRanks)

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