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It is a good company that makes very fine semiconductors. Its Ryzen chips are faster than Intel (NASDAQ: INTC). Its Radeon chips are competitive with Nvidia‘s artificial intelligence chip (NASDAQ: NVDA).
But it’s not worth 10 times the revenue or anything nearby. Its margins are thinner and growth is uneven. Traders started buying it because others bought it and sent the shares as high as $ 59 each.
Now the same traders are afraid of the coronavirus from China and they sell in the same way as they bought. As such, we can expect the AMD stock to go lower today. (It is more than 7% down at the time of writing).
What’s there is Cherce
As Spencer Tracy said of Katharine Hepburn in the movie Pat and Mike, “Not much meat on her, but what’s there is ‘cherce’.”
In 2019, AMD earned $ 341 million, about 35 cents per share, on sales of $ 6.73 billion. The company underwent a decline in chip sales from 2018 and came back strong. Revenue for the fourth quarter was $ 2.13 billion, compared to revenue for the first quarter of $ 1.27 billion.
I started knocking down the table for AMD shares as early as 2014, when Dr. Lisa Su was hired to replace Rory Read as CEO. Read had left a solid product map. He had sold the company’s chip foundry to focus on design. Su just needed to drive.
She has done it brilliantly. The market capitalization has gone from about $ 3 billion to almost $ 60 billion. The company is now breaking into the data center market, Intel’s last stronghold. The announcement by the alphabet (NASDAQ: GOOG, NASDAQ: GOOGL) of Google Cloud agencies powered by AMD sent the stock to its latest peak.
Not much meat
AMD is still a minnow in the wine-dark chip sea. Intel is worth more than four times more, to 265 billion dollars. Its revenue is more than ten times higher, at $ 72 billion.
AMD trusts Taiwan Semiconductor (NYSE: TSM) for its chip manufacturing. TSM has recently fulfilled Moore’s Laws promises better than Intel. It makes chips with circuit lines at 5 nanometer intervals, while Intel is still at 10 nanometers. This gives AMD a huge advantage that goes beyond its design. But it is an advantage held by TSM, not AMD.
AMD has reached the sweet spots of the market. The development of graphics chips into processors for the artificial intelligence revolution, pioneering Nvidia, has helped AMD. Analysts believe that AMD can increase its revenue by 30% this year.
But no one grows anywhere if the new virus does not exist. This was all the excuse that the traders who needed to sell.
The conclusion of the AMD share
Investors should ask what AMD is worth before making new purchase orders.
If you bought several years ago, make a profit here and wait for things to settle down. If you only came in recently, I would sit tight and let it grind back.
The question then becomes where to get in. Intel sells about 4 times revenue, with a price-to-revenue ratio of 13 and a dividend yield of 2%. After rising 40% in the past year, Intel is still a dormant giant, fully capable of compensating for lost ground, and it is still dominant in server chips.
The AMD stock may go much lower before recovering. You can afford to wait for it.
Dana Blankenhorn has been a finance and technology journalist since 1978. He is the author of the environmental thriller Bridget O’Flynn and the Bear, available at the Amazon Kindle store. At the time of writing, he had no position in any of the above-mentioned securities.