One of the top-performing stocks in the S&P 500 for 2018 was none other than chipmaker Advanced Micro Devices. In the year 2018, AMD stock saw an increase of 80 percent as compared to the 6 percent drop for the S&P 500. There is no denying that this was an impressive performance in itself, but it comes off as even more impressive when you compare it with the chipmakers peers. Even though AMD stock rose by 80 percent, others like Nvidia decreased by 30 percent and Intel saw an increase of 1 percent.
In other words, as compared to former favorite of the industry Nvidia, AMD stock managed to generate 110 points of alpha. Therefore, there were questions whether the company would be able to continue the run in 2019. It is possible that AMD stock may end up being the top performer this year yet again and might be worth investing in. But, before you go ahead with it, there are some essential factors that you should consider:
Increasing momentum in the server market
It seems that the chipmaker is poised to make some huge gains in the very fast-growing and large data center server market. For a long time, Intel has had a lot of control in this market, but it seems that AMD has been gaining momentum rather rapidly. In fact, according to Goldman Sachs, AMD stock has the potential of reaching single digits by the end of the year, up from 1.3 percent from the beginning of the year.
There have been a lot of serious delays faced by Intel when it comes to the rollout of its 10-nanonmeter server chip, but this has worked in favor of AMD. It has capitalized on Intel’s stumble through increasing the sales of its EPYC processor. Furthermore, the company is also moving ahead with its 7-nanometer chip and this would provide it an extra edge in the form of faster processors that are also energy efficient.
An edge in CPU technology
This is another factor that will have an impact on AMD stock. The chipmaker is planning to roll out its Ryzen CPUs for personal computers this year. According to rumors and the earliest indicators, this greatest and latest CPU will provide the company a technological edge in another notable area. In January, at the Consumer Electronics Show, Lisa Su, the Chief Executive Officer at AMD showed off their third-generation Ryzen CPU and the device managed to outperform Intel’s Core i9-990K CPU and did so while using a lot less power.
Increased competition on graphics
One more thing that could contribute to AMD stock’s increase in 2019 is its growing competition on graphics. The chipmaker is introducing its Radeon VII graphics processing unit (GPU), which would enable the company to give some tough competition to its rival, Nvidia, in terms of gaming graphics, especially with the RTX 2080 that they introduced in the fall.
The positive earnings outlook
The positive earnings outlook of the company is another reason why AMD stock might be able to continue its positive climb in 2019 as well. The fourth quarter reports published by the company were in accordance with Wall Street expectations, as per Bloomberg, or only slightly under. Moreover, the company has also disclosed that it is expecting to experience a high growth in its revenue this year, which has also had a positive impact on AMD stock.
Real advancements or product hype
There were some analysts who were unsure of AMD’s progress in 2019. But, in another analyst report, Goldman Sachs acknowledged that the products released by the company were undoubtedly an improvement. As far as the upcoming and pending releases are concerned, they were also considered as a positive move forward. It would be traction in the server CPU market that would determine the direction of the AMD stock.
The future of the semiconductor industry
AMD stock may have a positive outlook for the year, but the other chip makers are dealing with a more turbulent and uncertain market. In the beginning of the year, Nvidia reduced its sales forecast for the first quarter because of the falling demand for servers in China whereas Intel has also disclosed a fall in the spending on server chips. It was noted by Goldman Sachs’ analysts that the positive move of the AMD stock would definitely lead to a debate, whether it will be able to achieve the same success or not.
Considering these factors is of the utmost importance before you decide to invest in AMD stock. It can help you decide whether your decision is right for you or not. Yes, there is no denying that the outlook for AMD is quite positive and the gains in the server market are an excellent reason for any investor to purchase AMD stock. It has managed to break Intel’s control in the market and if it continues at the same pace, the AMD stock will pay off considerably in the long run.
Other than the server market, the GPU market is also where AMD seems to be gaining share and giving its competitors a run for its money. This is a very valuable market and any gains in share in this market can give the AMD stock a solid boost. With its growth rate, AMD is becoming a potential target of acquisition for Intel. While there is a strong possibility that it will not happen because the FTC wouldn’t allow it and the companies also have a tumultuous history, the constant rumors and speculation will work positively for AMD stock.
Apart from that, AMD stock also has a long-term growth potential because it is a relatively small company, when compared with its competitors, and it is rapidly gaining share in several markets. If it continues to steal away share from the top competitors, there will not be much difference left in their stock prices. Thus, more buyers will be attracted to AMD stock and this will increase its price, making it a solid investment.
You must be logged in to post a comment.