Advanced Micro Devices (AMD) is a diamond in the rough; indeed, the stock is revolutionizing the gaming industry, asserts Jon Markman, editor of Pivotal Point.
Unlike most of the technology sector, the Santa Clara, Calif., company is in the right markets with the right products at the right time. As a business, AMD is executing exceptionally well. Analysts like the prospect of a recovery in gaming revenues. Data centers are another big part AMD’s business.
In March of 2019, managers announced that the company won a contract to supply high-performance graphics processing units (GPUs) to Google (GOOGL) data centers. A few months later, a corporate press release touted that AMD graphics chips would be prominently featured in the next generation of Xbox gaming consoles from Microsoft (MSFT).
These are huge wins for a company that has always lurked in the shadows of its larger competitors, like Intel (INTC) and Nvidia (NVDA). The small company is showing that it can compete and win market share with great products for a terrific price.
Managers bet the company on cloud-based data processing and a gaming upgrade cycle. Now those markets, triggered by the coronavirus, are booming. The work from home trend is also upping demand for gaming electronics. It makes sense, video games and staying inside go together like peanut butter and jelly. And Cheetos.
The uptick in demand for the high-end game GPUs was the basis for a recent upgrade at Bank of America. An analyst at the investment firm notes that 57% of AMD’s gamer clients currently have legacy equipment. Its latest Big Navi GPUs, which are used in gaming PCs, are gaining favor quickly and are a likely upgrade, according to the firm.
Data centers and gaming were growing businesses ahead of the pandemic. However, social distancing is leading to profound shifts in the way consumers use technology. Now, they are gaming more. They are also working from home more, further taxing data center infrastructure. AMD’s low cost and high-performance GPUs are logical beneficiaries.
Shares have performed well in 2020. The stock is up 3.6% year-to-date. During the past 12 months, AMD shares have gained 66.5%. The best is yet to come.
Shares are now hovering just below $50. I expect a rally to at least $57 over the next several weeks. That 26% move higher would put the stock modestly below the record high achieved in February. Investors should look for weaknesses as opportunities to get in before prices rise even higher.
