Friday, October 10, 2014

Predictions for AMD

AMD stock prices have fallen roughly 20% combined in the past couple of days, precipitated by the changing of guard in its top leadership. Lisa Su has replaced Rory Read as the new CEO of AMD, becoming the first female top executive in the company. The general sentiment on Wall Street appears to favor Lisa Su, but concerned about the timing of the announcement. To say the least, the change is both unexpected and abrupt, belied by the company's Q3 earnings release next Wednesday (10/15). 

Unfortunately for me, I made a significant purchase of AMD stock a couple of days ago (which means I'm effectively down 20% on my new investment). This also means that had I had this foresight, then I would have been able to acquire 20% more AMD stock had I waited 2 days. Sometimes the market gets you. Good thing I'm a value investor...

To keep this post short, I'll just share my immediate thoughts about the recent events for AMD:
  1. I remain bullish on the company and its future outlook. While the past couple of years have been tough, with the company squeezed between a rock (Intel) and a hard place (Nvidia), portfolio diversification of AMD's product lines has started paying dividends. Its new initiative in ARM chips and monopoly over current generation consoles (e.g. Xbox One PS4, Wii U) will at very least guarantee steady income for the next 5 years. That being said...
  2. ...the stock will fall some more before next week is over. I'm predicting a weaker than expected revenue growth for its Q3 earnings, which I suspect is the reason Rory Read was ousted so suddenly and unexpectedly. Expectation is for the stock to fall to around $2.20 before it climbs back up.
  3. Lenovo will begin offering much more products with AMD chipsets than previously. Despite the announcement yesterday of Lenovo Yoga 3 Pro series, which marks the first use of Intel's newest Core M line of processors, I firmly believe that new CEO Lisa Su's background as a former executive in Lenovo will influence her old company to adopt more AMD chipsets. Everyone may be praising her technical and industry background, the elephant in the room is that Lenovo is currently world's #1 computer manufacturer. Intel may boast faster chips but 90% of Lenovo's user base will neither notice the speed difference, nor particularly care if they're given an AMD-based laptop instead. AMD's chips are cheaper than Intel's so there's that to seal this deal.
Taking the 3 points above together, it seems clear to me that AMD is a severely undervalued stock at the moment and has incredible upside in the next couple of years. It has a promising product roadmap ahead that targets industries that its direct competitors in Nvidia and Intel have largely ignored. With both Nvidia and Intel firmly entrenched (and struggling) to battle it out in the ARM market with the likes of Qualcomm and MediaTrek, this is a chance for AMD to buckle down and get ahead. Needless to say, I'll be looking to further increasing my AMD stake next week.