Even after several remarkable runs, Advanced Micro Devices (NASDAQ:AMD) is doing it again. On a year-to-date basis, the AMD stock price is up 74%. Even with a possible recession looming on the horizon, the semiconductor firm keeps on chugging.
Stakeholders owe a debt of gratitude to CEO Lisa Su. When she took over the helm, Advanced Micro Devices stock was a joke. Having languished under the competitive backdrop of names like Intel (NASDAQ:INTC) and Nvidia (NASDAQ:NVDA), AMD was approaching penny stock territory.
Su turned the company around, and in doing so, sparked a paradigm shift in the industry. Currently, it’s longtime rival Intel that is drawing sneers in Wall Street, having incurred unnecessary scandals and more significantly, falling behind in the technological race. With the smaller outfit churning out exciting processors, it’s no wonder the AMD stock price has skyrocketed.
But with the U.S.-China trade war giving all technology companies pause, it’s also time to reflect on their investment potential. For this, I like what my InvestorPlace colleague Vince Martin has to say: the bullish narrative for Advanced Micro Devices stock “isn’t up for debate.” The tech firm has staged one of the most remarkable comebacks in business.
The question is whether the AMD stock price can continue to impress the Street. Naturally, the bulls think that it can.
Admittedly, the optimists have evidence to back up their claims. Most notably, AMD beat both Intel and Nvidia to 7-nanometer technology. And that augurs well for competing in burgeoning industries like data centers for the cloud.
But if you’re eager to jump on Advanced Micro Devices stock, just wait.
For AMD Stock, Smaller Isn’t Necessarily Better
In our supersized culture, bigger is usually better. Whether we’re talking about pickup trucks or fast-food menu items, Americans want big. But in the semiconductor world, smaller is better. And that’s why Advanced Micro’s lead in 7-nanometer was so significant. Theoretically, they could pack in more processing power over a limited amount of physical processor space.
Again, it’s no wonder why industry excitement drove up AMD stock.
But being small for small’s sake is no good. In other words, moving to 7-nanometer doesn’t mean much if the net performance results are equivalent to larger node sizes. According to EE Times’ Rick Merritt, when AMD launched its first 7-nanometer chip, it was basically on par with Intel’s and Nvidia’s flagship processors.
So, even from the get-go, AMD had some credibility issues. As time goes on, we’re seeing more questions pop up that should concern prospective buyers of Advanced Micro Devices stock.
Primarily, these have to do with the reliability of AMD’s latest and greatest chips. According to a collection of computer enthusiasts’ claims, AMD’s chips aren’t living up to their stated performance benchmarks. Some experts in the field speculated that the processors will incur reliability problems if they are clocked too high.
Now, we should be careful about taking users’ opinions about AMD semiconductors as gospel, no matter their reputation. Still, their speculation makes sense. With smaller nodes, you simply have less buffer to absorb the various pressures and thermal conditions in a processing unit. And processors aren’t running cooler; if anything, they’re running hotter, exacerbating the problem.
InvestorPlace feature writer James Brumley posited the question about whether AMD rushed its 7-nanometer development. With problems from the field rising up, I think this inquiry is valid. Naturally, this creates more worries about AMD stock.
Technicals Confirm Broader Concerns about Advanced Micro Devices Stock
As I mentioned earlier, the AMD stock price has skyrocketed since the beginning of this year. But all of these gains have occurred within the first six months. Since early June, shares have been flat.
I also can’t help but notice that in recent weeks, the 50-day moving average (DMA) for Advanced Micro Devices stock has represented upside resistance. In last Friday’s session, AMD opened near the 50 DMA, only to close down 3%.
Why are the markets suddenly so pensive about AMD stock? Aside from the trade war drama and recession risks, I believe investors are paying attention to the company’s products. While they have won the nanometer war, they’re apparently stalling in the performance department.
If so, it presents a dark cloud on AMD’s ambitions to steal market share in areas such as data centers. Sure, data centers want high performance for less, but unreliable, short-lived processors defeat the purpose economically.
That’s not to say that Advanced Micro is a terrible company. Lisa Su made certain that AMD will always be a contender under her watch. But I think taking a breather is tactically the best approach here.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.
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