Advanced Micro Devices: Chances of Failure Are Very High

Advanced Micro Devices (AMD) has continued moving higher since the company’s better-than-expected earnings release. However, most of this rally has been fueled by hype and not fundamentals. In order to justify its current rally, Advanced Micro Devices will have to deliver on every front. Given the company’s history of underperforming against its rival, it is highly unlikely that it will be able to grow into its current rally to justify its valuation. As a result, I think Advanced Micro Devices is a very risky gamble that investors should avoid.

It all depends on Polaris

There is very little chance of a turnaround at Advanced Micro Devices.
The company has underperformed against its foremost rival NVIDIA (NVDA) and will likely continue underperforming. In the case of Advanced Micro Devices, a reduced amount of bad news has been good news, which has added fuel to its rally. While the company surpassed revenue consensus forecasts by delivering $832 million in top-line, it was 19 percent lower on a year over year basis.

On a sector basis, the company’s revenue plunged 25 percent in its small enterprise, semi-custom and embedded business, and a 14 percent in graphics and computing. Just after Advanced Micro Devices shared its first quarterly results, the company shares escalated 40 percent mainly due to the management guidance for second-half profitability. However, in most cases the company’s management publicized strong guidance, but failed to deliver strong results.

On the other hand, Advanced Micro Devices primary opponent NVIDIA has been snatching market share from the company. NVIDIA recently launched its new Pascal architecture and is on its way to introduce two new graphics cards based on Pascal architecture, whereas Advanced Micro Devices is yet to launch its new architecture known as Polaris. This clearly indicates that NVIDIA has taken the lead and is ahead of Advanced Micro Devices.

Advanced Micro Devices strategies focus on mainstream market, whereas, NVIDIA is using a totally opposite approach by emphasizing on the high-end graphics cards market. The company’s Polaris based graphics cards still have to face tough competition from NVIDIA’s efficient and popular prior-generation graphics cards, but NVIDIA will again take a lead in the lucrative high-end graphics cards market by introducing GTX 1070 and GTX 1080. Advanced Micro Devices tactic comprise lot of risks, and it cannot be certainly said that the company will regain market shares which it has been continuously losing to NVIDIA.

Advanced Micro Devices’ gamble on mainstream graphics could hurt the company badly if its Polaris architecture fails to meet the gamers’ expectation. And if this happens the company will carry on losing market share even at more rapid rate.

Hence, betting on Advanced Micro Devices just because of Polaris is a massive gamble that investors shouldn’t be willing to take.
Published on May 23, 2016
By Akshansh Gandhi

Copyrighted 2020. Content published with author's permission.

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