Here are a few things to consider before you sell AMD stock following its Ryzen launch.
Shares of Sunnyvale, California-based Advanced Micro Devices Inc (NASDAQ:AMD) have tanked after reviews by some popular sites claimed that the highly anticipated CPUs fell short of expectations in terms of gaming performance. A big chunk of AMD's recent stock price gains were driven by very high expectations from its latest line up of Zen architecture based Ryzen CPUs. And while AMD's new CPUs have reportedly met these expectations at large, its gaming performance, specifically with reference to lower resolutions, has left some reviewers wanting. That said, there are multiple factors worth considering before you write off AMD stock based solely on the Ryzen's lukewarm reception.
So, how bad is the situation for AMD?
We could be wrong, but the way we see it, this isn't a "sky is falling" sort of scenario. For starters, let's look at the criticism that's come through, very briefly. So, there was Ars Technica, which wrote, "The 1800X lags behind its Intel counterparts in gaming, regardless of whether it's running at the same clock speed or higher,". AMD's Ryzen CPUs also received some criticism from the likes of PCWorld and PC Gamer, among others. While some observers are quite pessimistic following the disappointing reviews, the situation might not be all that dire.
Given how aggressively AMD is going about fixing the issue, it's quite obvious that there is a problem. However, it might not be as big as some observers might suggest. For starters, a very believable explanation has come from John Taylor, a spokesman for Advanced Micro Devices, who says, "This is a matter of optimization by those games on Ryzen." And as Soid Ahmad of GuruFocus points out, "Advanced Micro Devices clarified that, as the company was out of the scene in the high-end CPU market, the games aren't optimized to work with the processors". According to Robert Hallock, a member of the CPU technical marketing team at AMD, reviewers ended up using a number of unoptimized benchmarks.
Nonetheless, AMD's CEO Lisa Su has swung into action to get things sorted out. Quoting from a post on PC World, she said:
"We hear people on wanting to see improved 1080p performance and we fully expect that Ryzen performance in 1080p will only get better as developers get more time with ‘Zen,’"
The post we've linked to makes for an interesting read, and it appears as if AMD might have some fixes in place before too long. Besides, it's not as if everybody is into gaming anyway.
Don't write off AMD's Ryzen CPUs just yet.
Do note that almost all of the criticism has only come in the context of gaming performance, and specifically with respect to lower resolution gaming. Ars Technica, who's criticism we quoted earlier in this post also says, "for the most part, Ryzen is highly competitive with Intel's eight-core i7-6900K." There are other sources as well, which highlight AMD's value proposition, like Guru3d.com, a reviewer quoted by MarketWatch:
“At $399, this processor is going to be a lovely deal,” the review said, adding that Intel’s worry isn’t Ryzen, “it’s the fact that Intel has been charging a lot, maybe even too much money for their processors for years now.”
The reviewer points out that AMD's high-end chip offers value for money, by virtue of being priced "50% below Intel’s". AMD's Ryzen launch has also pushed Intel to initiate price cuts on several chips. Quoting AMD's Lisa Su, "What we’re doing with the high-end is putting an 8-core processor out there, where today most games use only 4 cores,”. While that also implies the need for some software tuning for games to work better on these chips, as Su points out, it also has its advantages. Harsh Chauhan of The Motley Fool recently pointed out how AMD's pricing allows consumers to buy a more capable processor, at virtually the same price as some of Intel's chips:
"the Ryzen 3 1100 -- will cost $129. By comparison, Intel's entry-level Core i3-7100 Kaby Lake processor, launched this year, is selling for just under $120 at many online retailers though its specs are not quite as strong with two fewer cores."
In the same post, Chauhan has also pointed out how AMD is likely to enjoy the early lead over Intel, which is scheduled to launch its Kaby Lake-X Core i7-7740K processor in August this year. The post also sheds light on another interesting fact - AMD was gaining ground in the CPU market even prior to its Ryzen launch.
"Mercury Research points out that AMD also gained on Intel in the CPU market. Its x86 processor market share increased to 13.6% from 12.7% in 2015. On the other hand, Intel saw its market share fall accordingly to 86.3%."
So, if AMD could claw back market share with less capable chips, you'd assume they could do so with better ones as well. Besides, as a fellow author recently pointed out in a recent post, the ability to be competitive in the data centers space could be the biggest win for AMD. With AMD's Zen-based Naples CPUs, targeted at data centers, yet to be out, don't be in a hurry to write off the company's chances. Be it data centers or any other segments, AMD's relatively low market share presents the company with a huge opportunity to expand its top line.
Besides, AMD has only launched a handful of CPUs, which will be followed by its cheaper mid-range 5 series chips. And as Anthony Leather points out on Forbes, that's probably AMD's biggest opportunity:
"There are cheaper Ryzen CPUs on the horizon, though, and these are where AMD will really eat into Intel's market share. The Ryzen 5 series is widely expected to do battle with Intel's mid-range CPUs in the 7000 series such as the Core i5-7600K. Yesterday, AMD confirmed the existence of two models in the Ryzen 5 range for the first time and even more interestingly, it appears the flagship Ryzen 5 processor is faster than some rumors reported."
Summing it up - AMD still has a lot going for it.
Clearly, AMD still has a lot going for it. As various reviewers have pointed out, AMD's Ryzen line up is still very competitive, except in terms of gaming performance. And even those issues will be less severe, if not fully sorted out, eventually. For now, AMD has a very capable line up of chips at very aggressive prices. And as we pointed out, the chipmaker's CPU market share was improving even prior to the launch of its Ryzen line up. So, with better chips, AMD's market share looks like it has only one way to go - up. What probably a lot of observers are missing is that AMD doesn't necessarily need to kill Intel to gain market share or revenue. It only needs to be competitive, which it is, at compelling price points, to gain from the new products. And it appears as if what Lisa Su said while describing Ryzen's gaming performance, holds true for AMD as well, it "will only get better".
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