Will Advanced Micro Devices’ Rally End in Disaster?

Judging by the current rally, the market is expecting a lot from Advanced Micro Devices (AMD). Advanced Micro Devices has returned over 200% gains over the last few months and has even outperformed its primary rival NVIDIA (NVDA).

If the past is any indication, it is very likely that Advanced Micro Devices will struggle to meet the market’s expectation. Although I was bullish on the stock once, I think now would be a great time to sell it and book profits.

Is RX 480 a win for Advanced Micro Devices?

Advanced Micro Devices lost a lot of money last year, which forced the company to spend less in R&D division as compared to its foremost rival NVIDIA.
A few years ago, Advanced Micro Devices was the leader of graphics card segment, but NVIDIA changed the whole game, and now it holds a major portion of market share of around 80 percent.

NVIDIA and Advanced Micro Devices are the only two companies that matter in the graphics cards industry. Both the companies recently introduced their new architecture to build innovative and advanced graphics cards.

Advanced Micro Devices lost almost every battle against NVIDIA in 2015, but the company’s stock price has surged around 80 percent this year. However, that does not mean that it has beaten NVIDIA, as the reason behind its near-term success was the optimism regarding new products.

On the other hand, stockholders should also keep in mind Advanced Micro Devices’ history of failing to deliver on its promises. Advanced Micro Devices strategies to focus on the mainstream market by launching lower-end graphics cards based on Polaris architecture, whereas NVIDIA has launched GTX 1070 and GTX 1080 that fundamentally aims the high-end market. This clearly suggests that Advanced Micro Devices has handed over the lucrative market to NVIDIA without any struggle.

Advanced Micro Devices has literally put all its eggs in one basket, and if its strategy to tackle the mainstream market fails, the rally could reverse course rapidly. All three of the company’s new cards are designed to appeal mainstream gamers. RX 480 was launched on June 29, and is available for around $199. Advanced Micro Devices’ decision to first focus on the mainstream market will definitely help the company win back some market share.

However, the success will not continue for a long time, as NVIDIA will soon launch graphics cards based on Pascal architecture especially designed for mainstream users and will definitely prove to be a tough competitor for Advanced Micro Devices.

Apart from this, as per pcadvisor.co.uk, RX 480 draws 190W of power in several games, 40W more than its rated power of 150W TDP. This can create a lot of problems which could fry the motherboard’s PCIe slot with prolonged use.

With NVIDIA hitting new all-time highs last week, Advanced Micro Devices is under a lot of pressure to deliver. However, going by the past, I would recommend investors be safe and sell the rally before it ends up badly.
Published on Jul 12, 2016
By Prudent Investor

Copyrighted 2020. Content published with author's permission.

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