AMD saw losses
In the previous article, we saw that Micron (MU) has a bleak outlook in the short term but holds potential in the long term. Another company plagued with losses is Advanced Micro Devices (AMD). The company posted losses for the past four quarters because of strong competition from Intel (INTC) in the CPU (central processor unit) segment and from Nvidia (NVDA) in the GPU (graphics processing units) segment.
Over the past five years, AMD stock has fallen more than 60% and is currently hovering around $3. Looking at the past year’s performance, the stock is showing an upward movement of ~13%. After a bad 2015, the company is up for some growth in 2016 with its new launches and design wins.
A new hope for AMD in data center and HPC
AMD manufactures x86 microprocessors, discrete GPUs and professional graphics, and server and embedded processors, and semi-custom SOCs (system-on-chip) for gaming consoles.
The company lost its market share from more than 25% in 2011 to 1% at present, as its Bulldozer architecture failed to compete with Intel. After five years, AMD has entered the data center market, and this time with a longer roadmap and enhanced architecture. The company has launched a new CPU architecture “Zen” targeted at high growth markets such as data centers and HPC (high performance computers), which is currently dominated by Intel. AMD has a benefit on the price front, as Intel chips are expensive. If the product becomes a success, the company’s stock would jump into the growth trajectory.
Revenue from other products
Moreover, the company is revamping its GPU product line to make it competitive with Nvidia. AMD has also secured three design wins for its semi-custom SoCs. These wins will start earning revenue beginning in the second half of 2016 with the first two wins expected to generate a combined revenue of $1 billion over a period of three years. The third design win is rumored to be with Nintendo for its NX game console.
PricewaterCoopers expects worldwide console game sales to reach $28 billion by the end of 2016. However, it expects PC games to overtake console games, reporting sales of $29 billion in 2016. Nvidia is at the forefront of PC gaming and would pose tough competition to AMD in this space.
In the next part of the series, we will look at Nvidia stock’s potential in 2016. You can gain exposure to the mid-cap semiconductor stocks through the iShares Core S&P Mid-Cap ETF (IJH), which has 0.12% exposure in AMD.