Advanced Micro Devices, Inc. (NASDAQ:AMD) has been somewhat of an enigma to me. Despite having very questionable financial vulnerabilities that its competitors don’t have to think about, Advanced Micro stock keeps on ticking. In the year-to-date, AMD is up an impressive 15%. Despite fundamental misgivings, this rough-and-tumble semiconductor firm is worth a speculative look.
Source: Matthew Rutledge via Flickr
Now I want to clarify: I don’t recommend going full-bore into AMD stock. For the longest period of time, I’ve cast my doubts on company shares. Part of the reason is that AMD is incredibly choppy. Its trailing-year price ranges from $9.70 at the low to $15.65 at the high. Unfortunately for long-term shareholders, they’ve had to endure this stomach-churning ride throughout 2017, and even into the new year.
I’ve also wondered when the fundamentals will start to matter for Advanced Micro stock. Back in early 2016, few investors wanted to touch the company. Those that took long positions enjoyed one of the most brilliant contrarian moves in recent memory. While technical sentiment shot skyward, the financial outlook looked more or less the same.
That is to say, Advanced Micro stock showed up several rivals in the markets. However, the underlying organization lacks the fiscal firepower of an Intel Corporation (NASDAQ:INTC) or a Nvidia Corporation (NASDAQ:NVDA). The latter two have the resources to invest heavily in research and development, whereas AMD cannot without increasing debt.
In addition, I don’t like the comparative instability of Advanced Micro’s free cash flow. At the very least, it tells me that management has distractions that its rivals don’t have to deal with.
These challenges may negatively impact the AMD stock price in the long run. For now, I sense a speculative opportunity.
Advanced Micro Stock Will Benefit from Cryptocurrency Resurgence
Why am I having a (slight) change of heart towards AMD? It mostly comes down to the current cryptocurrency resurgence. I’m a firm believer in bitcoin and its potential. Moreover, with several digital tokens having crashed back down to earth, now is an ideal time to buy.
Along with this increased sentiment, crypto mining is set to boom. Without getting too deeply involved in the granularity, mining is the process in which cryptocurrencies are acquired. Utilizing advanced GPUs, miners compete to decipher complex codes within a blockchain network. The first miner to complete the problem ends up confirming a block of transaction data within the blockchain, and receives a cryptocurrency unit as a reward.
Although it sounds like a fun way to operate a “side hustle,” mining is incredibly energy intensive. If you don’t have the fastest computer, you’ll end up paying a higher utility bill for nothing. Logically, as crypto prices rise, mining becomes more lucrative. Should bitcoin and gang continue their promising rally, Advanced Micro stock will benefit handsomely.
While the chipmaker has significant competition with Nvidia in the mining sphere, AMD has the populist advantage. According to TechRadar.com, the best crypto-mining GPU is the Nvidia GeForce GTX 1070. It features a hash rate (very simply, the speed at which a processor can engage the mining operation) of 30 mh/s. The second-best GPU is the AMD Radeon RX 580, which has a 29 mh/s hash rate.
The GeForce is a few ticks faster than the Radeon; however, it’s also 71% more expensive. That right there gives an advantage to AMD, and by logical extension, Advanced Micro stock.
However, crypto miners must stack multiple GPUs together to stay competitive. At a 71% pricing discrepancy, that adds up to serious dollars for relatively minor performance gains.
AMD Stock Primed for a Technical Rally
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Another reason why I’m interested in the cryptocurrency angle for the AMD stock price is its technical posture. As I previously mentioned, 2017 was a choppy mess for the company. But when zooming out to a longer term perspective, AMD looks like it’s forming a flag formation.
According to trusted investor resource Stockcharts.com, flag formations tend to resolve in the dominant trend’s trajectory. In this case, the dominant trajectory is very much bullish. Advanced Micro stock will likely continue trading sideways for a few more sessions, but at some point, it can explode.
The opportunity here isn’t about analyzing the financials; it’s all about how investor and trader sentiment perceives AMD. Given the enormous potential and popularity of cryptocurrencies, I believe shares will work its way to the mountain tops again.
Still, AMD stock is one of the most volatile investments in the market. If I’m wrong about this, it could go sour in a hurry. Therefore, if you’re going to take a shot, I would do so with only the speculative portion of your portfolio.
As of this writing, Josh Enomoto is long bitcoin.
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