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Are AMD's ABCs Worth the Price Tag?

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Are AMD's ABCs Worth the Price Tag? PART 1 OF 17

Inside AMD’s Key Drivers in 2017

Top semiconductor stock in 2016

Advanced Micro Devices (AMD) has recently been the top semiconductor stock, rising 295% in 2016 and 23.5% from January 2, 2017, to February 27, 2017. All this growth comes on the back of future growth potential of the company, which has been struggling to compete with industry leaders Intel (INTC) in the CPU (central processing unit) market and Nvidia (NVDA) in the GPU (graphics processing unit) market.

Inside AMD&#8217;s Key Drivers in 2017

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CPU market

AMD is prepared to compete with Intel in the high-end CPU market, however, with its new Ryzen desktop processors, which are due to launch on March 2, 2017, followed by server processors Naples in 2Q17. The company aims to regain its lost market share in the PC space by following a low-cost, high-volume strategy.

AMD is tapping the declining PC (personal computer) market, however, while Intel is moving away from it. While AMD’s Ryzen may not pump up PC demand, it could help the company gain some share from Intel, which owns more than 80% share in the PC processor market.

GPU market

AMD is also looking to gain market share in the high-end GPU space, with its Radeon 500 series Vega GPUs, which are thought to compete well with Nvidia’s high-end Geforce GTX 1080 and the future GTX 1080 Ti. AMD’s Vega GPUs are expected to come in the market by the end of 2Q17.

Not only is AMD investing in new products, it’s also looking to expand its licensing business. It has filed a patent lawsuit against four companies: LG, Vizio, MediaTek, and Sigma Designs—for using its GPU technologies. It’s also demanding a ban on the products that use its technology in the US.

AMD improves earnings

In an interview, AMD chief executive Lisa Su stated that the new products will help the company increase its revenue in 2017 and return to profits. In fiscal 2016, AMD boosted its revenue by 7% year-over-year, improved its gross margin, and achieved operating profitability on a non-GAAP (generally accepted accounting principles) basis.

The company has also improved its balance sheet by re-profiling its leverage and reducing its interest expense and managed to generate positive free cash flow by the end of fiscal 2016.

However, all these positives could turn negative if the Trump administration starts a trade war with China (FXI). AMD would be hurt the most by such a war, as it has larger exposure in China than Intel and Nvidia, and this could bring the stock spiraling down and push AMD back into losses.

In this series, we’ll look at all the above factors and discuss how they could impact AMD’s investors.

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