AMD Stock is Still Undervalued

AMD logo

 

The stock price of AMD dropped over 24% after the Q1 2017 earning report call. With the earning per share of -0.07, the expectation was met. However, the big drop was due to weak Q2 gross margin guidance since the investors are the creatures who concern with the prospects rather than the current status. There was also the previous big drop due to Goldman Sach’s analyst Toshiya Hari rated the AMD stock to Sell rating. Since Goldman is the reputable investment company, this is certainly a good indication that AMD has the weaker future.

 

But remember what Warren Buffet said about the investment. Don’t invest in stocks but invest in the company’s future. The reason why AMD bounced back from the stock price of under $2 per share was due to turnaround in leadership under CEO Lisa Su. Remember back in the day when AMD fairly competed against Intel with the stock price as high as $65 per share? The positive trend that AMD exhibits at the moment clearly indicates that AMD definitely managed to turn the company around with the research in new GPUs and CPUs architectures.

 

Let’s look at two of AMD’s closest competitions: Intel and NVIDIA. Intel has the current market cap of about $172 billion.

 

NVIDIA, which is the graphic card marker, has the market cap of $61.51 billion.

Contrast these figures with that of AMD, which has the market cap of under $10 billion.

At the moment, this is a fair valuation, given that the earning per share of AMD is still hovering over minus. However, imagine what will start to happen if AMD is starting to take out the market share of Intel and NVIDIA. With the introduction of new CPU called Ryzen, AMD yet did not achieve the spectacular sales number to post the record revenue. This is partially due to the benchmark analysis that most gamers and reviewers did not find that Ryzen’s performance is spectacular over Intel’s comparable i7 CPUs. But two things can bring the big waves in next few periods: Ryzen’s relatively cheaper price value for its good as Intel CPU’s performance and the new remarkable architecture.

 

Ryzen boasts the relatively cheaper price over Intel’s counterparts. For gaming enthusiasts and BIY (Build It Yourself) PC hobbysts, they will probably flock over most powerful CPUs of all, which can mean Intel at the time. However, when the PC brand makers like HP, Dell, Asus, and Microsoft choose to sell the computers including the motherboard with integrated CPUs, there is a very high possibility that they can decide to go with AMD CPUs now. And there is also the datacenter space, where AMD now proved its worth to be powerful over Intel. Furthermore, there is a rumor that Apple’s iMac and laptops will adopt AMD CPUs, which will be the extremely positive achievement for AMD.

 

Let’s talk about Ryzen’s new architecture. Intel’s Tic Toc cycle was good enough when AMD had been struggled to survive. But AMD now defined a new architecture, and the possibility to introduce new series of powerful CPUs became very good. And this is a change that can play the big part for next 5 years.

 

Lastly, there is still a new graphic card that AMD is supposed to announce in next month. Named as Vega, there are always some unofficial reports cycling around this Vega graphic cards is much better than NVIDIA’s GeForce graphic cards. Since NVIDIA’s market cap is around $60 billion, don’t you think there is a good chance that AMD will catch up to at least half of that? After all, consumers’ demand will be the deciding factor to determine who will be the winner or loser.

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