How AMD’s and NVIDIA’s Price Momentum Compares


Sep. 30 2019, Updated 4:03 p.m. ET

Advanced Micro Devices (AMD) is among the best-performing semiconductor stocks of 2019, rising over 50% year-to-date. AMD’s hypergrowth in the last four years reminds us of another stock, NVIDIA (NVDA), which reported hypergrowth for two consecutive years. Both companies compete in the discrete GPU (graphics processing unit) market. However, the reasons for their rallies vary.

NVIDIA rallied 223% and 81% between 2016 and 2017 as its Pascal GPUs were widely adopted in the PC gaming and data center spaces. Pascal GPUs opened up AI opportunities for NVIDIA. The company saw triple-digit revenue growth in the data center segment and became a leader in AI computing. It also benefited from the growing popularity of PC gaming, where it was already a leader.

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In AMD’s case, the stock rose 295% in 2016 and 80% in 2018 as it gained market share from Intel (INTC) and NVIDIA. AMD is neither a market leader in the CPU (central processing unit) or GPU spaces nor at the inflection point of future technologies such as AI. However, its stock rose as it emerged from near bankruptcy in 2015 and returned to profits in 2018.

When did NVIDIA’s hypergrowth end?

NVIDIA stock rallied on double-digit revenue growth. This hypergrowth came to an end in October 2018, when its next-generation Turing GPU failed to attract the desired adoption. Moreover, the crypto bubble burst, and the US-China trade war created oversupply in the GPU market. The combination of these headwinds paused NVIDIA’s double-digit revenue growth, the driver of its rally. NVIDIA stock halved between October and December 2018. It reported its first revenue decline in more than three years in its fourth quarter of fiscal 2019, which ended in January 2019.

The stock is showing signs of growth, but another hypergrowth cycle is nowhere in sight. We may see another growth trend when autonomous driving technology becomes commercial.

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When will AMD’s rally end?

Like NVIDIA, AMD’s rally will also end when the reason for it vanishes. A stock’s price is influenced by investor sentiment. Investors want to see a company’s future growth potential and its effective implementation in tapping this potential. This is what NVIDIA did by constantly beating its earnings estimates and increasing its total addressable market. It’s also what AMD is doing by effectively implementing its product road map and achieving its target market share.

AMD stock is rallying on market share gains in the PC and server CPU and GPU spaces. CEO Lisa Su expects to achieve a 10% server CPU market share by 2020 with the help of AMD’s second-generation EPYC Rome CPU. If we consider the early adoption of EPYC Rome, we’ll find that this target looks achievable. As long as AMD continues to gain market share, its stock will rally. This means it should rally for another year, as Intel and NVIDIA are unlikely to launch competitive products before mid-2020. Beyond that, AMD’s rally is likely to normalize. At that time, the stock’s price will be influenced by its EPS growth.

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Does AMD stock pay dividends?

AMD is a growth stock, and only those investors who are interested in capital gains invest in it. AMD doesn’t pay dividends because it doesn’t have stable earnings or cash flows. NVIDIA started paying dividends in fiscal 2013 after it had reported stable EPS and cash flows for three years in a row.

AMD has a long way to go before it even thinks about dividends. Its first priority is to achieve positive EPS and free cash flow and maintain them. Its second priority is to invest in future technologies such as AI. Once it achieves stable cash flows, it might think about dividends.

Investor takeaway

If you already own an AMD stock, stay invested, as it has the potential to grow for the remainder of the year and even into the next. Buy on the dip and sell on the rally. AMD is currently in a short-term dip. It will rally on future product announcements in November. We suggest investors partially cash out their profits by selling some of their holdings when the stock rallies. This is what insiders have been doing.

According to data from the Nasdaq, no insider buying of AMD stock has taken place in the last 12 months. Instead, there have been 56 insider sells, indicating that management has cashed out some profit from the rally.

Puja Tayal does not own AMD shares.


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