Why AMD’s Growth Story Came to a Halt
AMD’s growth story
Advanced Micro Devices (AMD) has been the top-performing semiconductor stock over the last year, rising 420%. Both analysts and investors have been bullish on the stock, with analysts giving it “buy” recommendations even at its higher price.
However, the stock fell 13% last week to $12.31 as of April 13, 2017, after Goldman Sachs went against the current and recommended a “sell” on the stock. Many analysts are still optimistic about AMD and think Goldman Sachs’ rating is wrong.
Interested in AMD? Don't miss the next report.
Receive e-mail alerts for new research on AMD
What’s going well for AMD?
Fiscal 2017 is expected to be a turnaround year for AMD as the company moves from losses to profits.
In fiscal 2016, the company relied largely on its semi-custom business for growth. This setup is expected to change in fiscal 2017 as AMD makes a comeback in the high-end CPU (central processing unit) and GPU (graphics processing unit) markets, which are ruled by Intel (INTC) and NVIDIA (NVDA), respectively.
AMD launched its high-end Ryzen 7 CPU in March 2017. The Ryzen 7 is expected to compete with Intel’s CPUs. AMD also launched the Ryzen 5 CPU for mid-market customers on April 11, 2017, and it’s expected to launch the Ryzen 3 CPU later in the year. AMD is looking to regain some of its share in the high-end CPU market.
AMD is also making a comeback in the high-end GPU space, with its upcoming Vega GPU due to be released by the end of fiscal 2Q17. Vega’s success would put AMD ahead of NVIDIA in the GPU space, as the latter’s competing Volta GPU is unlikely to hit the market before 2018.
AMD will also launch an advanced version of its mid- and low-end Polaris GPUs under the Radeon 500 series.
AMD’s key game console market is also witnessing a faster refresh rate. Sony (SNE) launched a new version of the PlayStation 4 at the end of 2016, and Microsoft (MSFT) is due to release its new console, Scorpio, later in 2017. These new consoles will likely drive demand for AMD’s high-end APUs (application processing unit).
AMD is set to venture into the data center market with its Naples CPU, giving competition to Intel in the server space. Moreover, it’s accelerating its efforts in heterogeneous computing to support machine learning. This endeavor should make AMD a competitor to NVIDIA in the AI (artificial intelligence) market.
While Intel and NVIDIA are leaders in their respective markets, AMD is the only company with high-performance CPUs and GPUs. All these opportunities come with risks, and that’s what has likely caused Goldman Sachs to downgrade AMD. We’ll look into this downgrade in the next article.