The Bull Case for Advanced Micro Devices

Although I have been pretty bearish on Advanced Micro Devices (AMD) over the last few months, the company does have a few things going for it that I will be acknowledging in this article. With that said, I still wouldn't recommend buying the stock since I still think the negatives outweigh the positives.

Advantages from licensing deal

Recently, Advanced Micro Devices confirmed that licensing deal with Intel to license the latter’s graphics technology perfectly lines up with the company’s vision and that it is certainly open to such a licensing deal.

At present, the company produces the major portion of its top-line from selling APUs and GPUs to enterprise customers and end consumers.
This type of business includes inventory and manufacturing threats that harms a fretful company’s financials in form of revenue drop or write downs, every time when there is an unpredicted hardware sales drop. Therefore, Advanced Micro Devices Advanced Micro Devices’ licensing deal with Intel will reduce these risks to a greater extent.

On the other hand, Advanced Micro Devices would not have to increase its capital outlays or R&D budget for the deal to go in the right direction. The company already has the IP and is prepared for licensing. If the deal happens successfully, the company can produce risk-free returns practically immediately.

Intel also has prevailing licensing deal with NVIDIA for a period of 6 years for licensing its IP. Intel paid $1.5 billion to NVIDIA for licensing deal. If Advanced Micro Devices gets an identical deal from Intel, and with a same yearly payment structure of $250 million, an additional cash inflow of this scale could enhance its balance sheet going forward.

The annual fee doesn’t matter much when equated to the company’s revenue but surely will have a substantial influence on its earnings. Meanwhile the deal would probably be based on multiyear agreement and the financial outcomes would be long-term.

Advanced Micro Devices can utilize this additional money to expand its operations, increase its R&D expenses to launch even more efficient architecture or increase its expenses to launch chips grounded on viable nodes. The cash from the deal might also be used by Advanced Micro Devices to accomplish its aspiring goal of cracking the server division with its impending ARM-based chips.


Advanced Micro Devices does have a few things going for it, but due to the company’s past, I wouldn’t recommend investing in the stock just yet. Hence, despite the positive factors mentioned above, I think Advanced Micro Devices is a sell.
Published on Mar 30, 2016
By Akshansh Gandhi

Copyrighted 2020. Content published with author's permission.

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