Making the Bear Case for Advanced Micro Devices

In a recent article, I tried to make a bear case for NVIDIA (NVDA). In this article, I will focus on one of NVIDIA’s primary rival, Advanced Micro Devices (AMD). After struggling throughout 2015, Advanced Micro Devices finally rallied in the last few months as the stock is up almost 100% from its year to date lows.

Like NVIDIA, Advanced Micro Devices has rallied hard and strong, which is why I think investors should sell the stock and wait for the rally to cool off before diving back into the stock.
Advanced Micro Devices has probably shot up too much in too little time and it is highly likely for the stock to give back a large portion of its gains.

Unlike NVIDIA, whose primary headwind was just its overvaluation; Advanced Micro Devices faces several headwinds going forward. Advanced Micro Devices lost a massive portion of its market share to NVIDIA and Intel previous year. The company’s rally was kick started by its better-than-expected first quarter results, which were mainly due to the wise leadership of new CEO Lisa Su. That being said, investors shouldn't bank too much on the earnings and should focus on Advanced Micro Devices’ headwinds going forward.

NVIDIA recently introduced its new Pascal architecture as well as two new graphics cards, GTX 1080 and GTX 1070, based on this architecture. NVIDIA is growing at a better-than-expected rate, as the company is making its presence strong in several sectors such as datacenter, automotive, etc. While NVIDIA has released its new architecture, Advanced Micro Devices’ much hyped Polaris architecture relics in deceptive limbo.

Advanced Micro Devices is expected to launch its Polaris architecture by early June, but some circumstantial evidence points to the fact that Polaris has been postponed, and it is probable that the company will not be able to launch Polaris by the expected date. If this is correct, then it will have a shattering impact on the company’s financial position and its image as a turnaround stock.

Apart from this, Advanced Micro Devices’ shares of the server chip market have taken a sharp downturn, as the company has lost almost its entire market share to Intel (INTC). Intel accounts for approximately 99% of server chips retailed each year, and that has enabled the company to generate stunning profits in its data center business.


Given Advanced Micro Devices’ stunning rally, the company needed to deliver on every front just to sustain its valuation. However, like many times in the past, it seems like Advanced Micro Devices is about to fail yet again, which is why I think investors should book profits now.
Published on Jun 1, 2016
By Yaggyaseni Mittra

Copyrighted 2020. Content published with author's permission.

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