Last year, Advanced Micro Devices, Inc. (NASDAQ:AMD) was flawless, as its shares soared from $2 to $11.30. But things have been much different in 2017. AMD stock seems more like its former self, sputtering along.
For investors, this is even more discouraging as rival NVIDIA Corporation (NASDAQ:NVDA) has continued to post robust returns. Note that the shares are up about 102% so far this year. In fact, many chip operators have rallied.
So what’s going on? Well, the turnaround at AMD has been choppy. It also does not help that the company has a long history of disappointment. Often prior recoveries have been short-lived because of the competitive environment.
Oh, and something else: The AMD stock price is far from cheap. Consider that the forward price-to-earnings ratio is about 32X.
OK then, so what to make about AMD stock price? Can things get back on track? Well, I think so. And to see why, let’s take a look at three key factors.
Bullish Reason No. 1 For AMD Stock: Intel Combo
By far, the most threatening nemesis for AMD has been Intel Corporation (NASDAQ:INTC). The rivalry has gone far back as the 1970s. It’s actually almost a miracle that AMD has survived.
So this is why the recent deal between INTC and AMD is so interesting. (It’s the first time the two firms have entered a partnership since the 1980s.) Both companies will develop a sophisticated laptop chip for the gaming market, which will include an INTC processor and an AMD GPU.
No doubt this could be a nice revenue generator. Let’s face it, gamers would love to have a laptop that provides for immersive experiences. It is also important to note that AMD is expected to launch Ryzen chips for ultrathin laptops by the end of this year.
And finally, AMD should benefit from the massive distribution footprint of INTC. According to InvestorPlace.com’s Luke Lango: “This is huge news for AMD. The partnership gets them on the right side of a shifting trend at essentially no cost to its current business.”
Bullish Reason No. 2 For AMD Stock: Long-Term Growth
During the past couple years, AMD has launched a multitude of products — all targeting massive market opportunities. But as should be no surprise, it has taken time to get traction as the company has had to deal with the inevitable long sales cycles.
But the product offerings should allow for long-term growth. For example, there is Epyc, which is for the enormous data center market. As a testament to the technology, AMD has signed on customers like Hewlett Packard Enterprise Co (NYSE:HPE), Dell, Microsoft Corporation (NASDAQ:MSFT) and Baidu Inc (ADR) (NASDAQ:BIDU).
Then there is the Radeon Vega, which is a high-end GPU for PC gaming, professional design and machine learning. Actually, the chip is a part of Apple Inc.’s (NASDAQ:AAPL) iMac Pro.
Next, AMD has revamped its CPU offering with Ryzen. Even though the market is mature, there is significant marketshare to take away.
Bullish Reason No. 3 For AMD Stock: Consolidation
Broadcom Ltd’s (NASDAQ:AVGO) blockbuster $105 billion bid for Qualcomm, Inc. (NASDAQ:QCOM) is definitely a game-changer. It highlights that old-line chipmakers have significant value. It also shows that there is tremendous capital and resources to pull-off large deals.
All this should be encouraging for holders in AMD stock as the company does look like an attractive buyout opportunity, in light of the growth prospects. What’s more, the company’s GPUs should be a critical factor. For the most part, the technology has proven to be a must-have for AI (Artificial Intelligence), which is one of the hottest markets right now.
Tom Taulli is the author of High-Profit IPO Strategies, All About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.
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