Nobody can deny that the beginning of the month was turbulent for Advanced Micro Devices Inc. (AMD). The company’s shares registered their biggest one-day drop in more than a decade on the 2nd May. They dropped from $13.62 to $10.32 amid concerns about disappointing first-quarter sales and an analyst downgrade. AMD’s revenues ($984m) rose 18% year-on-year but failed to meet analysts’ expectations ($984.5m) because of seasonality in its computing and graphics segment and its enterprise unit.
Every cloud has a silver lining and AMD’s quarterly loss narrowed to $73m (8 cents/share) in the first quarter of 2017, compared with a loss of $108m (14 cents/share) in the same period last year. The improved product line-up has started paying off. Strong demand for AMD’s graphics processors and its new Ryzen CPUs were encouraging.
Last year, AMD’s shares had surged 295% as the company returned to annual revenue growth. This impressive increase might be only a beginning. Last Tuesday, AMD sent a clear signal to its investors. It has a well-prepared and long-term strategy. The $21 billion server market offers AMD the most growth opportunity. A few years ago, the company left the data center and high-end PCs markets. It is back at it again and its first goal will be to rapidly regain market share. In order to do this, AMD is going to compete with Intel Corp. (INTC) and NVIDIA Corp. (NVDA). They have successfully rethought what it means to be pioneers. EPYC and Vega are the main novelties.
EPYC is the server chip that will challenge Intel and potentially change the cost dynamics for cloud data centers. A single-socket EPYC server can actually replace a dual-socket Intel Xeon server, offering an efficiency advantage. EPYC also supports dual-socket configurations, which seem to be superior to Intel’s dual-socket Xeon. AMD will unveil the pricing information at the official launch in the second half of June. An aggressive price strategy could make EPYC really attractive.
Vega Frontier Edition is a graphics-processing unit that will target machine-learning workloads with up to 16 GB of HBM2 memory. Early tests showed that high-end Vega cards would rival Nvidia’s Pascal P100 GPU.
Lisa Su, AMD’s chief executive, is clearly confident about this strategy’s capacity to generate profitability in the near future. Investors might have to put AMD on a level playing field with Intel and Nvidia earlier than expected. AMD found out what Intel and Nvidia’s customers really wanted and needed, and it will give it to them better and faster. Therefore, the company based in Santa Clara will no longer be in the shadow in terms in CPUs for servers and GPUs for the data-center market.
It’s too early to declare victory, but some traders and analysts suggest the intrinsic ability of AMD to generate future profits has not been fully priced into the current market. I can’t help but be optimistic, said a trader based in London. “I know I must be cautious, but seriously look at the potential that the company has to grow its profit in future years”, he added.
At yesterday’s closing, AMD’s shares were traded at $11.04 and seemed to be a profitable deal for value investors. J.P. Morgan, MKM Partners, Pacific Crest Securities and Canaccord’s analysts believe the market has undervalued these stocks. They have an average 12-month price target of $13.56. The long-term trend remains clearly bullish for the Californian company.