Is it time to bulk up on the stock of high-flying chip maker Advanced Micro Devices, Inc. (AMD) ? Or is it better to take a pass?
It all depends if you believe AMD can continue to soar above the rest of the often turbulent semiconductor industry and outfox rivals such as Intel (INTC) and Nvidia (NVDA) , or whether the company may be due, if not for a crash landing, then at least a comeuppance.
AMD has been a great long-term bet for investors, having risen more than tenfold from $2.14 in February 2014 to $22.82 as of Feb. 12 in a turnaround orchestrated by CEO and President Lisa Su, who took over the reins in 2014.
Here are six factors to weigh as you decided whether to dive in or bail on AMD now:
1. Growing momentum in the server market
AMD appears poised to make big gains in the very large and fast-growing data center server market. Intel has long had a lock on this market, but AMD is gaining momentum, with the potential to reach the mid-single digits by the end of 2019, up from 1.3% now, according to Goldman Sachs. While Intel has faced serious delays in the roll out of its 10-nanometer server chip, AMD has been able to capitalize on this stumble with increased sales of its EPYC processor. AMD is also forging ahead with a new 7-nanometer chip, which could give the company an added edge with faster processors that also use less energy.
2. Emerging edge in CPU technology
AMD plans to roll out its third generation Ryzen CPUs for PCs by the middle of the year. Early indications are that AMD’s latest and greatest CPU may also give it a technological edge in another key area. At the Consumer Electronics show in January, AMD’s Chief Executive Officer CEO Lisa Su showed off the soon-to-be released 8-core, third gen Ryzen CPU at a demo in which it outperformed Intel’s Core i9-990K CPU, all while using less power.
3. Getting more competitive on graphics
AMD is rolling out its Radeon VII graphics processing unit (GPU), which should make it competitive with Nvidia on gaming graphics and in particular with Nvidia’s RTX 2080, launched in the fall.
4. Positive earnings outlook
AMD reported recently reported solid fourth quarter earnings that either met Wall Street’s expectations, according to Bloomberg, or came in just a hair under, according to Zacks. AMD said it expects revenue growth for 2019 in the high single digits, compared to analyst predictions in the 6% range, helping drive its stock price higher after the report.
5. Real strides or product hype?
Some analysts are skeptical of AMD’s guidance for 2019, however. In a recent analyst report, Goldman Sachs acknowledged AMD’s new products are an improvement, but nonetheless characterized the new and pending releases as an “incremental positive.” Wrote analysts Toshiya Hari, Charles Long and Matthew Fahey: “We remain Neutral rated on AMD as we await signs of further traction in the server CPU market.”
6. The outlook for the semiconductor industry
AMD may be optimistic about 2019, but other chip makers are facing a more turbulent market. Intel has reported a slowdown in spending on server chips, while Nvidia lowered its sales forecast for the quarter amid falling demand in China. Goldman’s analysts noted that AMD’s upbeat 2019 projections “will likely drive a healthy amount of debate, in our view — specifically, whether AMD will be able to achieve this level of growth given the aggressive ramp it embeds post the Q1 correction.”