I am always skeptical about the stocks that go almost in a straight line, and that has been the case with Advanced Micro Devices (AMD, Financial) this year. While I was once bullish on Advanced Micro Devices, I think the stock has run up too far to be justified by its growth. As a result, I think investors should start booking profits.
NVIDIA is Still a Leader
Throughout the past few years, Advanced Micro Devices lost considerable market share to its foremost rivals NVIDIA (NVDA, Financial) and Intel (INTC, Financial). The company lost the war as it was battling against two massive companies at the same time. As a consequence, Advanced Micro Devices lacked the R&D resources to sustain while competing with both players in chip architecture and power efficiency.
However, in a bid to turn its fortunes around, Advanced Micro Devices recently launched some new graphics cards based on its latest Polaris architecture. The company’s objective was to snatch back some market share from NVIDIA by placing its focus on mainstream stream market, as Radeon RX 480 was priced at just $199.
However, the strategy backfired as initially Extremetech reviewed RX 480 as the best $200 GPU, but later it was found that RX 480 draws more power than the rated power, and ultimately can fry motherboards. After few weeks, NVIDIA launched its new Pascal based GTX 1060 graphics card, which was priced at $50 more than the RX 480.
All in all, it is worth it for gamers to pay $50 more for GTX 1060, as it is 11% faster compared to RX 480, along with 15% greater all-round performance, according to average reviews from UserBenchmark. Hence, I think the hype surrounding Polaris will die once the actual numbers are disclosed in the coming months.
What about Zen?
Advanced Micro Devices is on its way to launch its new CPU architecture called “ZEN”. The company projects to begin shipping the Zen based CPUs in bulk soon. Furthermore, the company also claims that the eight core PC version will prove to be a neck to neck competitor for Intel’s high-end CPUs.
Furthermore, Advanced Micro Devices detailed that it has fixed all errors that are present in its prevailing generation of CPUs. However, one should also keep in mind the company’s habit of over-promising and under-delivering, as same was the case with RX480.
It cannot be definitely said that the Zen architecture will be a disappointing one, but it can be certainly said that if Zen fails to fulfil the promises, it will become nearly impossible for the company to gain back its position again.
Conclusion
Given the history, the chances of Advanced Micro Devices backing up the recent rally with strong numbers are extremely slim. Thus, I think it is time for investors to book profits and sell Advanced Micro Devices.
Disclosure: I don't hold a position in any of the stocks mentioned in the article.
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