Should You Buy AMD Stock?

With the coronavirus capturing the headlines for several weeks now, perhaps you’ve pulled some money out of the market? Perhaps you’re also looking for places where you could put that money? And probably, you’d like to put it somewhere that isn’t about to get busted with the virus. If that sounds something like you, read on.

While it’s never easy to predict exactly what any stock is going to do, there are certain things about a stock that tell you that you’d rather go with it than a whole lot of others. Advanced Micro Devices AMD is one such stock.

It’s super-confident CEO Lisa Su has impressed just about everyone on the street with what she can pull off. And quite frankly, for a technology company, the place you want to be in is where innovation’s happening. So the way AMD has kept its head down to the design board to release a slew of new chips and architectures, while Intel INTC continued to talk up its capabilities that were rapidly falling behind, is highly commendable. Management even released an aggressive product roadmap at its investor’s meeting and Su is one person we can depend on to deliver the goods. 

So yes, Intel is a great company, it’s got deep pockets that can extend to some pretty stiff price competition that AMD can have a hard time competing with. But Krzanich pretty much made a mess of its process lead and Intel’s manufacturing has now fallen behind others. Not only that, AMD chips have, according to a number of experts been outperforming Intel components (by some benchmarks at least).

What’s more, AMD’s surge to prominence has come at an opportune time. The PC business was one that Intel dominated very completely, and AMD’s push to take share was difficult because of the many relationships with integrators that Intel had secured all over the world and AMD’s own capabilities being somewhat limited. This time round, the data center is the market everyone is targeting and demand from this market is only just beginning to gather momentum. So AMD has got its foot in the door much sooner.

Moreover, customers these days prefer to second source, or at least build systems in a way that doesn’t make switching costs too much of a burden. This is good news for a challenger in any market.

At its latest investor meet, management said this business may be expected to grow very rapidly to make up a 30% share of its revenue. And being a higher-margin business, it will take the company’s gross margin north of 50%, which is a pretty big deal.

Finally, since the coronavirus is what everyone is talking about now, that’s worth discussing too. Everyone expected the company to be somewhat severely impacted, since it depends on Taiwan Semiconductor TSM and others in Southeast Asia. But management said that although there was a slight disruption in the first quarter, the computer industry’s supply chain was rapidly getting back to its usual levels of activity with AMD suppliers in China, Taiwan and Malaysia being almost back to normal levels of output. Moreover, while it’s seeing weaker demand in China, the rest of the world was holding up well. So the company maintained its full-year guidance.

So let’s talk about the price. AMD stock has been relatively more resilient to the virus-related sellout and that situation should continue. Although the shares are up 118% on the year and appear to be overvalued by conventional valuation metrics, it’s where you can park your money for the longer term.

Zacks has a #3 (Hold) rating on the shares mainly on valuation considerations. But here are a few others that pass that test as well: Smith Micro Software SMSI, Maxar Technologies MAXR, The Rubicon Project RUBI and Lyft LYFT, all of which carry a Zacks Rank #1 (Strong Buy).

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Intel Corporation (INTC) : Free Stock Analysis Report
 
Smith Micro Software, Inc. (SMSI) : Free Stock Analysis Report
 
Advanced Micro Devices, Inc. (AMD) : Free Stock Analysis Report
 
Taiwan Semiconductor Manufacturing Company Ltd. (TSM) : Free Stock Analysis Report
 
The Rubicon Project, Inc. (RUBI) : Free Stock Analysis Report
 
Maxar Technologies Ltd. (MAXR) : Free Stock Analysis Report
 
Lyft, Inc. (LYFT) : Free Stock Analysis Report
 
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