Advanced Micro Devices' Turnaround Is a Pipe Dream

2015 was a volatile year for Advanced Micro Devices (AMD) as the company lost almost every battle in the CPU as well as GPU market to peers Intel and NVIDIA. On the GPU front, Advanced Micro Devices continuously lost its market share to NVIDIA. At the end of 2015, Advanced Micro Devices had just 20 percent market share while rest of the 80 percent belonged to NVIDIA.

In 2015, Advanced Micro Devices’ Fury and Fury X were not able to meet public expectations which handed the lead to NVIDIA’s GTX 980 Ti. The main problem with Advanced Micro Devices was that its major rivals, being more prosperous, generated a lot of cash to spend on R&D.
As a consequence, Intel and NVIDIA were able to introduce even superior architectures and even production processes.

Apart from this, NVIDIA was the only competitor in the GPU market, but Intel’s entry in the GPU market made the situation even critical. Intel stated to use even more powerful GPU into the CPU. Considering the above situation and previous year results, it is not likely that Advanced Micro Devices will recover this year. Advanced Micro Devices needs at least two efficient products to snatch some market share from NVIDIA and Intel and to again become competitive in GPU and CPU market.

In terms of CPU, Advanced Micro Devices plans to launch its new Zen architecture late this year. It is still not clear whether Zen architecture is competitive with the latest architecture from Intel or not. Advanced Micro Devices’ first APU (Accelerated Processing Unit) based on “Excavator” has still not managed to compete against Intel’s prevailing units. On the other hand, the company promises Zen architecture will have a 40 percent surge in Instructions per Cycle compared to Excavator. Therefore, this new architecture might help the company to avoid further loss.

However, when the best case scenario for Advanced Micro Devices is to avoid losing market share, I don’t think it can be considered a good investment. Moreover, given the history of failures, I wouldn’t bet against Advanced Micro Devices’ falling prey to its peers once again this year as well.

So, while investors can wait to see how Advanced Micro Devices’ new products are received by the customers, I would suggest investors to stay away from the stock for the time being. Although Advanced Micro Devices is already been beaten down over the last few months, I think the stock can still offer more downside.
Published on Mar 3, 2016
By Akshansh Gandhi

Copyrighted 2020. Content published with author's permission.

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