Why AMD Stock Is Not A Long Term Investment

  • AMD stock is showing a nice run up this year.
  • Product launches are coming thick and fast.
  • Can they sustain the momentum, or will they fold in their fight against the competition?.

Advanced Micro Devices, Inc. (NSDQ:AMD) stock has had a nice run-up in 2016, showing a near 215% return in the last one year and 100% return since the start of the year. Though the company is yet to break out of its operating loss streak, AMD stock kept moving higher as a sequence of product launches lifted investor sentiment. The company now expects its third quarter revenue to increase approximately 18% on a sequential basis.
AMD stock chart

Source: AMD Stock Price Chart by amigobulls.com

Current market position and the competition


Posting wildly swinging quarterly operating profits isn’t a new thing for AMD. The company has a long history of stitching together several profitable quarters only to fall back into the negative territory again.

Also Read: Why AMD Inc Stock Has Bottomed Out For Now

Their biggest problem is consistency, the ability to keep up pace with the market and keep delivering products on time. AMD operates primarily in two segments, the computing and graphics segment that includes desktop/notebook processors and chipsets, and graphics processing units (GPU’s). In addition, they are also part of the server and embedded processor segment as well as the system-on-chip (SOC) market.

The problem with all these segments is that the technology has to keep evolving every year. Companies are always working towards improving their existing products, and waiting to launch their next generation products. This constant movement forward is what has made our desktops slimmer and smartphones smarter, and taken our visualization to a whole new level. So if your product hits the market a little later than your competitor’s, then your business is pretty much at the mercy of the wind.

As such, AMD has always been the second best player in two crucial markets. The company trails NVIDIA in the graphics card market and sits behind Intel in the PC processor market. AMD needs to break this positioning and, until that happens, its bottom line is going to keep travelling from one side to another.

Also read: Does A Revamped Nvidia Corporation Spell Trouble For AMD?

Recent product launches and next year’s plans

  • Launched “Polaris” family of next-Gen GPUs for the mainstream market, RX 480, 470 and 460  
  • Launched a new family of professional graphics cards, the Radeon™ Pro WX Series, available in Q4 2016  
  • Will launch “Vega” for the enthusiast market in 1H 2017 with more than 200 million head-mounted VR displays by 2020, AMD supports major VR platforms
  • New high-performance CPU core “Zen” available in 1H 2017 for servers

The company has a clear sequence of product launches lined up for this year and the next. But it is still way too early to say the company has started to win the market share race. In this industry, a single product win amounts to just few quarters of breathing space.

Three-year vision - can they execute it?


As you can see from their three-year plan above, AMD has chosen the right areas to work on. Both gaming and virtual reality/augmented reality are fast-growing markets because of increasing consumer demand. Computing is obviously growing on the back of the cloud industry, and embedded systems fall well within the scope of the Internet of Things market.

But the real question here is whether AMD can follow through on these plans. Can they really overtake NVIDIA in the gaming segment? Will their Vega product actually come out in time to catch the quickly accelerating VR hardware industry? The same could be asked of Zen or even Radeon. One product shipment deadline miss and AMD will be back to square one in that segment.

Also Read: AMD Stock Could Explode If Vega GPUs Arrive in 2016


When you look at the company from a price perspective you’ll see that they are still suffering from a bearish sentiment that won’t go away soon. That is unless they deliver what they promise over the next three years. They need to consistently deliver, and when that happens, market share growth will happen, investor sentiment will stay strongly positive and the impact will be seen on the stock price. Until then, however, it is extremely difficult to recommend AMD stock as a long-term buy and hold stock.

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Author's Disclosures & Disclaimers:
  • I do not hold any positions in the stocks mentioned in this post and don't intend to initiate a position in the next 72 hours
  • I am not an investment advisor, and my opinion should not be treated as investment advice.
  • I am not being compensated for this post (except possibly by Amigobulls).
  • I do not have any business relationship with the companies mentioned in this post.
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Amigobulls does not have any business relationship with any of the companies covered in this post. This post represents the views of the author/contributor and may not reflect the views of Amigobulls.

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Comments on this article and AMD stock

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AMD is a 50 year old company and you wrote an article about long term prospects based on the last 5 years.
15 reply
"Can they sustain the momentum, or will they fold in their fight against the competition?"

Well, they've just raised an extra billion dollars practically overnight, and their product lineup in CPUs and GPUs has never looked more compelling vs. their respective Intel and nVidia competitors, plus they now also own the gaming console market, and they currently have the most hands-on, shrewd and astute CEO in Lisa Su that they've ever had, with the possible exception of the founder, Jerry Sanders. I'd say the answer to your question is 'Yes, they can sustain their momentum.'
4 reply
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