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Are AMD and Intel Perfect ‘High Risk, High Return’ Examples?

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Nov. 20 2020, Updated 3:00 p.m. ET

AMD’s stock performance

Advanced Micro Devices (AMD) has been a favorite of tech investors, as the stock rose 80% in 2018 and 50% in the first four months of 2019. The last two years saw a turnaround in AMD’s financial situation. The company turned its multiple years of losses into profit and improved its balance sheet. The company also managed to gain market share in the server and PC CPU (central processing unit) markets.

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AMD’s and Intel’s ROI

Lisa Su became AMD’s CEO in October 2014 and within four years turned its ROIC (return on invested capital) from -9.25% in 2014 to 19.34% in 2018. During this period, rival Intel (INTC) reduced its ROIC from 16.5% in 2014 to 10.3% in 2017 under the leadership of Brian Krzanich and later grew it to 21.3% in 2018 under the interim leadership of Bob Swan.

Intel’s new leadership aims to improve its ROI by streamlining its R&D (research and development) efforts in areas that generate higher returns for a longer period of time. Under this strategy, Intel exited McAfee, Saffron, Wind River, and its wearables business, which helped it reduce its operating expense ratio from 36.5% in the first quarter of 2017 to 30.4% in the first quarter of 2019. Most recently, Bob Swan announced Intel’s exit from the 5G smartphone modem space.

On the other hand, AMD’s leadership has been focusing on developing competing products that generate a better price-to-performance ratio. Its focus has been on product implementation.

AMD’s stock technicals

AMD’s stock is currently in an uptrend as it is trading above its 50-day moving average. The stock may react significantly to any news, as it has a beta of 4.0. Beta is a measure of volatility where the market has a beta of one. Anything greater than one indicates that the stock moves greater than the market and a beta of four shows four times more volatility than the market. This was visible in the recent stock movement on May 6 and 7 when the S&P 500 Index fell 2.1%, whereas AMD’s stock fell 5.55%.

Like all other chip companies, AMD is exposed to the United States-Chins trade war. However, the trade war may not push AMD’s earnings into the red this time.

Check out all the data we have added to our quote pages. Now you can get a valuation snapshot, earnings and revenue estimates, and historical data as well as dividend info. Take a look!

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