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Despite existing for nearly 50 years, semiconductor giant Advanced Micro Dynamics (AMD) is not a market leader in its two main manufacturing categories: CPUs and GPUs. The general notion towards the company is that is offers products with slightly lower performance at significantly lower prices. After struggling for several years, AMD stock price quadrupled in 2016.
On the GPU front, AMD’s main rival is NVIDIA, which is considered the market leader. However, while NVIDIA has a firm grasp on the high-end market, AMD presents significant competition due to its superior performance-to-price ratio, which is alluring to those who wish to build high-performance gaming PCs on a budget.
On the CPU front its main rival is Intel, which holds a market share of nearly 95% in chips for desktops, laptops and servers. While this could be seen as a drawback, it mainly means that with each small increase in market share, AMD’s revenues could increase dramatically. For example, it is estimated that if AMD captures 5% of the three aforementioned markets, its revenue could increase by $1.5 billion. The gap between the performance of the rivaling companies’ chips is narrowing increasingly, while prices remain much lower on AMD’s end.
Traders who wish to invest in the tech sector: Since AMD has been in the tech sector for nearly 50 years,and has shown impressive growth in 2016, it could be a good option for those who have faith in the sector as a whole.
Thematic investment in the gaming industry: The PC gaming industry is constantly growing, fueled by relatively new trends, such as eSports. Therefore, more people could opt for the inexpensive solutions for computer graphic accelerators AMD has to offer.
Intel and NVDA investors: Since both companies rival AMD directly, and AMD could take a bite out of the two companies’ market share, an investment in AMD could be a hedging tool for those who invest in the other active players in the semiconductor makers.
Day traders: AMD is constantly releasing new products, and could present opportunities for both long and short positions.
While the AMD’s products are considered slightly lower-performance at a lower price, this trend could reverse in coming years. The company is constantly developing new chips, and might introduce a processor which surpasses its main competitors, while still keeping prices affordable. In 2017, the company planned to launch a processor which offers better performance than Intel’s top-tier CPU, at a fraction of the cost.
Since AMD’s market share is relatively small, while still having a market cap in the billions, each small gain of market share means a big relative increase in revenue. Therefore, AMD stocks could potentially show significant swings as the competition with Intel and NVIDIA continues.
AMD’s declared mission is to disrupt the PC market by offering high-performance affordable chips. For example, the company’s 8-core processor, Ryzen, retails in the US at $499, half the price of its Intel counterpart. Moreover, the Ryzen outperformed Intel’s Core i7 processor in tests conducted in early 2017.
Investors who wish to buy AMD stock should consider the company’s meteoric rise in 2016 and early 2017. While it could be an indicator of continuing growth and an increase in share price, some analysts predict that AMD stock prices have peaked. On the other hand, with so many potential innovations expected in the ever-developing PC market, this market segment is anything but stagnant.
Alongside the competition with Intel over PC processors and NVIDIA for graphic processors, AMD’s stock price is also affected by legal battles. In 2006, AMD acquired ATI Technologies, and received ownership of several patents in the process. However, in early 2017 the company claimed that various big names, including LG, have been using these patents in their processors. The American International Trade Commission accepted AMD’s initial claims, and began investigation into the matter. Winning this legal battle could mean both increased revenue in usage-rights payments by the companies who use these patents or, in the unlikely event of them stopping to use these technologies, a new market segment for AMD to expand into using its existing patents.
Additionally, on the price vs. performance front, AMD could continue to score more points. While the focus in the battle between AMD and its rivals is on high-end processors, it could be the low and mid-tiers that add to AMD’s profitability. The majority of consumers don’t go for the top-of-the-line processors and opt for more affordable options. As more consumers begin to realize that AMD generally offers a much better performance-to-price ratio, the company's market share could expand.
AMD has been around for quite some time. In the late 1960s, several key engineers left the then global-leader Fairchild Semiconductor. While the first group to leave, led by Robert Noyce founded Intel, the second group, led by Jerry Sanders, founded AMD. The two companies established themselves as global leaders in the semiconductor industry and even entered a 10-year partnership in the early 1980s.
However, as time progressed, the two companies became fierce rivals and as the PC became more widespread, Intel became the dominant market leader. AMD kept producing and started focusing on other markets, such as graphic processing, alongside CPUs. In recent years AMD has generated more attention with its ever-improving product offering and saw its stock price quadruple in 2016.
As of 2017, AMD established itself as a brand which offers products with slightly lower performance at a fraction of the cost of its competitors. However, the company is taking strides into new territory by attempting to develop products with performance which rivals and even supersedes that of Intel and NVIDIA. If AMD lives up to its promise and keeps its prices competitive, it could increase its market share. Since the markets it operates in is dominated by its two main rivals, each small increase in market-share would mean a significant boost to its revenue stream.
*This content is for information and educational purposes only and should not be considered investment advice or an investment recommendation.
*Past performance is not an indication of future results. All trading carries risk. Only risk capital you're prepared to lose.
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