Don’t Buy Advanced Micro Devices, Pick NVIDIA InsteadAMD) has soared terrifically since my first buy recommendation and the stock has surpassed even my most bullish estimates. In fact, I have been recommending investors to book profit for quite some time, yet the stock has sustained its upwards trajectory.
While a small rally was long overdue, Advanced Micro Devices’ 100%+ rally since YTD lows is driven by hype and not fundamentals. Advanced Micro Devices faces several headwinds, thus, I still think investors to sell the stock and book profits.
Will Radeon RX 480 save AMD?
Recently, NVIDIA (NVDA) introduced its new high-end GTX 1080 graphics cards based on Pascal architecture.
Apart from this, NVIDIA has also launched GTX 1070 priced at $380, which is comparatively less efficient than GTX 1080 but more efficient than the two linked GTX 980s or the Titan X. However, Advanced Micro Devices also publicized its new graphics card Radeon RX 480 based on its latest Polaris architecture, priced at just $199, and will be available in the market from 29th June onwards.
In comparison, RX 480 is priced at one third of NVIDIA’s GTX 1080 and slightly more than half of NVIDIA’s GTX 1070 just because it focuses on mainstream market, whereas NVIDIA’s Pascal based graphics cards focuses on high-end market. It looks like Advanced Micro Devices has launched the graphics card for gamers who are not willing to pay more than $200, and this might snatch some market share from NVIDIA. However, all the positives have already been priced into Advanced Micro Devices’ current price and the upside here is pretty limited.
On the other hand, Advanced Micro Devices’ focus on the mainstream market also suggests that the company is handing over the profitable market (high-end segment) to NVIDIA very easily. Furthermore, it is highly likely that NVIDIA will launch new graphics cards in the upcoming few months which will focus on mainstream market, and will definitely compete contrary to Radeon RX 480.
Another problem for Advanced Micro Devices is that it almost lost every battle against NVIDIA in the previous year, therefore NVIDIA presently relishes a market share of approximately 80 percent. Moreover, NVIDIA is building out its software offerings such as GeForce Experience, and this can be a reason for gamers to stick with NVIDIA’s graphics cards.
However, Advanced Micro Devices has made a smart move by launching Polaris based graphics card at very less price. Now it all depends on NVIDIA, as it should soon launch a new graphics card that focuses on mainstream market. Till then, it is expected that RX 480 can gain at least some market share.
While Advanced Micro Devices will gain some market share, the current stock price has baked in all the foreseeable tailwinds. As a result, I think investors should use this rally to book profits.
Published on Jun 7, 2016By Prudent Investor