Advanced Micro Devices or AMD was founded in 1969 in California to produce logic chips more efficiently and effectively. This threw itself in direct competition with Fairchild Semiconductor which had dominated the market at that time. The upstart American semiconductor company gained market traction. However, because the market for logic chips had become saturated in the early 1970s, it decided to expand into new markets and saw an opportunity in the microprocessor markets. AMD has now become one of the largest semiconductor companies in the world and has been renowned for developing central processing units to compete against Intel and graphics processors to compete against Nvidia.
Should You Invest in Advanced Micro Devices: A Look Into the Pros and Cons of AMD Stock
Pros: AMD Stock Advantages
AMD has proven its capabilities to challenge leaders in various markets. It has been confronting the dominant position of Intel in the CPU market and has also earned a reputation in the GPU market to dare the dominance of Nvidia. The company is now known for its Ryzen and Radeon lines of central processing units and graphics processors that are marketed for PC users. It also has a considerable level of presence in the enterprise-level and specific markets for data processors and artificial intelligence accelerators. Investing in AMD means betting on its capabilities to expand its market shares. The following are the advantages of AMD stock:
• Innovation and Competitive Pricing: The reason AMD has succeeded in challenging the dominant positions of Intel and Nvidia in the respective CPU and GPU markets is that it has developed processors that focus on higher core counts while providing an almost equal performance at a more attractive price point. This has been the main selling point of the company that has allowed it to attract and even retain new and existing customers.
• Diversification of Product Portfolio: It is also worth mentioning that Intel has remained dependent on the CPU market and Nvidia has been focusing on the GPU market. AMD has been focusing on both. Hence, if the CPU market slows down, it still can depend on the GPU market which has a diverse customer base because of its various use cases. AMD also designs specific processors for the lucrative server and data center markets.
• Still Considered a Growth Stock: Another advantage of AMD stock is that it is still considered a growth stock despite attaining a large-cap stock status. This comes from its historical growth with a stock price that is above Intel and considerably below Nvidia. The company has also been investing heavily in research and development to improve its CPU and GPU products and capitalize on the ongoing artificial intelligence revolution.
• Opportunities in Various Markets: The demand for high-performance computing has been increasing. This is driven by the expansion of enterprise computing, cloud computing, and artificial intelligence. AMD has products to support this demand. The console gaming and PC gaming markets are also growing. AMD has supplied graphics processors for PlayStation and Xbox and has a decent market share in the PC gaming market.
Cons: AMD Stock Disadvantages
It is important to underscore the fact that Intel remains the dominant player in the CPU market while Nvidia continues to dominate the GPU market. AMD has struggled to outcompete these two companies and has remained in the second spot in terms of market shares. It also needs to work on its brand perception. The company is also exposed to the risks and challenges inherent to the semiconductor industry and the overall tech sector. Investing in AMD can have benefits but also exposes investors to possible disruptions that can affect the market positions and financial standings of the company. The following are the disadvantages of AMD stock:
• Key Markets and Accounts Reliance: The company is still dependent on the sales of CPUs and PCUs for the end-use PC market. This can be a problem because the PC market has been in decline since the advent of smartphones. It is also dependent on a few key accounts like certain PC manufacturers and cloud services providers. The company still lags behind Intel and Nvidia in marketing to business-to-business customers.
• Outsourced Manufacturing Dependence: AMD has become a fabless semiconductor company beginning in 2009. It outsources its manufacturing requirements to companies like TSMC and Samsung. This means that part of its innovative capabilities is dependent on the capabilities of its outsourced manufacturers. The company is also exposed to the issues and other risks or potential problems hounding these manufacturers.
• Comparatively Lower Profit Margins: The company invests heavily in research and development. It is also important to reiterate the fact that it has retained its competitive pricing strategy to compete against dominant players. These two factors leave it with lower profit margins compared to Intel and Nvidia. It is still worth noting that the company still has decent cash reserves that can be used for expansion and innovative pursuits.
• Non-Dividend-Paying Volatile Stock: Another disadvantage of AMD stock is that it does not pay dividends. Owning and holding shares of the companies are incompatible with an income-generating investment objective. Furthermore, because its stock is also considered a tech stock, the stock price can be volatile. Investors should invest in AMD with short-term fluctuations in mind and in consideration of long-term growth prospects.