Are advanced micro-devices as good as they get?

<p>The Legend of Advanced Micro Devices (NYSE: AMD) CEO Dr. Lisa Su continues to grow.

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Microsoft (NASDAQ: MSFT) will now sell AMD chips in its Surface laptop. It can only be the beginning of a beautiful friendship.

The chip used is a standard part. But AMD and Microsoft now have a multi-year agreement for semi-adapted parts that guarantees a steady flow of orders in the coming years.

As hardware has become software, with companies like AMD becoming fantastic, the role of cloud giants like Microsoft, Apple (NASDAQ: AAPL) and Alphabet (NASDAQ: GOOGL, NASDAQ: GOOG) continues. These companies have the capital to dominate chip production. Keeping them close is the key to survival, but it is not the only key.

AMD still small

When trading opened on October 8, AMD had a market value of $ 31.45 billion, while Microsoft had a market value of $ 1,041 trillion. AMD is also still a small player in the chip market. Graphics chip rival Nvidia (NASDAQ: NVDA) is worth $ 112 billion. Processor rival Intel (NASDAQ: INTC) is worth $ 221.6 billion.

AMD‘s small size has been an advantage for investors. At the opening price of $ 28.93 per share, AMD has been a 10-digger for those who came in as early as 2016, when the share was traded at $ 2.14 per share.

AMD sales, in the wake of last year’s inventory, now run at $ 6 billion a year, 50% more than just three years ago. In the industry, it is a fantastic growth rate. But AMD only had profits of $ 35 million in the June quarter, of $ 1.531 billion in sales.

For the September quarter, to be reported on October 29, analysts expect a dramatic improvement, sales of $ 1.8 billion and earnings of 18 cents per share, about $ 210 million. It looks like a tall bar. The “whispering number” that analysts speculate is a gain of 17 cents. A “whisper number” below the official forecast is a bearish signal.

AMD stock and the problem of being small

There are other problems with AMD’s small size.

Apple’s decision to have Taiwan Semiconductor (NYSE: TSM) make its A13 bionic chip for the iPhone 11 line means that AMD is now “fighting for production” at that facility. There is no alternative supplier, because TSM is the only factory that has perfected the 7 nm processor which is the key to AMD’s product leadership.

The Apple movement is also hurting Nvidia, with which AMD competes in graphics chips. Everything is an outgrowth of what I call “Moore’s second law”, that the costs of starting chip production escalate when the gap between circuit lines becomes smaller. TSM has become the whole industry’s bottleneck.

TSM’s success has made it more valuable than Intel, at $ 238 billion. It could still be a player in the ongoing tug-of-war between the United States and China. Taiwan is nominally independent, but Chinese have been taught from birth, it is as much China as Hong Kong is. Escalation and a step towards the island, which holds its election in January, could break the entire technical economy.

Conclusion on advanced micro-devices

Born in Tainan, Taiwan in 1969, Dr. Su has brilliantly navigated AMD’s path among the giants of the chip and cloud industry. The only problems the company’s Ryzen processors and Radeon graphics processors face are delivery restrictions. These restrictions point directly back to her home island.

AMD is well positioned for continued success, in a business sense. But investors should know that the geopolitical risk to everyone in space increases with every tweet and every Chinese response. An investment in AMD today is an investment in peace as well as in Dr Su.

Dana Blankenhorn is a finance and technology journalist. He is the author of the environmental story, Bridget O’Flynn and the Bear, available at the Amazon Kindle Store. Write him on danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. At the time of writing, he owned shares in AAPL and MSFT.