Advanced Micro Devices Inc. (AMD, Financial) has staged a very impressive turnaround this year with the stock rising slightly more than 300% from the year to date lows. However, despite the meteoric rally, Advanced Micro Devices’ fundamentals remain weak and have not improved enough to justify the rally. Throughout the first six months of this year, Advanced Micro Devices produced just $1.86 billion in sales, down from the $1.97 billion it raked in during the first half of 2015.
That being said, the company’s better-than-expected performance was mainly due to the launch of its new GPU (graphics processing unit) architecture, Polaris. It had also launched several graphics cards, such as Radeon RX 480, based on its new architecture.
However, after the launch of RX 480, it was found that the card draws excessive power from the PCIe slot, which can fry the motherboard. This was the result of poor R&D spending, as the company has less cash to spend in order to effectively compete against its well-managed rival NVIDIA Corp.Ă‚ (NVDA, Financial).
By comparison, NVIDIA had also launched new graphics cards based on its new Pascal architecture. Recently, NVIDIA launched two versions of its new Pascal-based GPU, GTX 1060. The new 3 GB and 6 GB versions of the GTX 1060 are priced at $199 and $249. Both the cards are highly efficient and support virtual reality.
According to ratings by gpuboss.com, GeForce GTX 1060 is better than Radeon RX 480, as RX 480 is rated 8.2 compared to 8.5 for NVIDIA’s GTX 1060. Most significantly, NVIDIA’s GTX 1060 has a maximum of 6 GB RAM, which has outperformed AMD’s RX 480 8 GB version.
The virtual reality market is gaining a lot of traction as of late and both NVIDIA and Advanced Micro Devices are betting big on it. However, NVIDIA’s dominance in the graphics market gives it a strong advantage.
Moreover, NVIDIA has a diversified business model as the company has a strong hold in VR as well as automobile markets, which may be the two hottest sectors in the technology industry.
Final words
In spite of lower revenue, cost-cutting has aided Advanced Micro Devices in decreasing its operating losses. However, it is necessary for the company to focus on sales, as escalating sales is the only way for the company to get back to sustainable profitability. Moreover, Advanced Micro Devices’ rally can only be justified with an improving sales trend. If the company continues to lose market share to NVIDIA, its rally will fade away fairly quickly.
Disclosure: I don't hold a position in the stocks mentioned in the article.
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