Tech stocks have taken a beating over the last few days as the market has corrected significantly. However, Advanced Micro Devices (AMD, Financial) has surged massively as the market showed slim signs of recovery.
NVIDIA (NVDA, Financial) is the leader in the graphics card business, followed by Advanced Micro Devices. By the end of 2014, NVIDIA’s introduction of the GTX 980 and GTX 970 in the market proved to be a blessing. For years, Advanced Micro Devices has been playing second fiddle to NVIDIA, claiming market share of around 40%. But NVIDIA has started growing its dominance by snatching market share over the last few quarters.
Throughout the first half of the previous year, it became crystal clear that Advanced Micro Devices’ loss of market share was not just a distinctive instability. The company’s listing of products was severely disturbed by NVIDIA in late 2014. The company was off track while NVIDIA began to relish the benefits from the GTX 980 and GTX 970. The company was fundamentally uncompetitive in the high end of the market until it finally introduced its new products in the second quarter of 2015. The company’s launching of new products somehow stabilized the market share but was not strong enough to overcome the damage caused by NVIDIA.
Fury and Fury X failed to meet expectations
Advanced Micro Devices launched its latest graphics cards in late June 2015, but the product failed to meet customers' expectations. According to the company, the Fury as well as Fury X were grounded on high-bandwidth memory, something that NVIDIA graphics cards will not have until mid-2016. This was supposed to give Advanced Micro Devices the lead in the competitive market. But according to third-party reviews, Advanced Micro Devices' offering failed to be disruptive, with the Fury X performance fundamentally similar to NVIDIA’s flagship graphics card's performance.
On the other hand, the remainder of Advanced Micro Devices’ lineup, the Radeon 300 series, was a rebranded version of the preceding 200 series of graphics card. Rebranding is the most common strategy in the graphics card business although changing the product name and tweaked performance was not enough to attract PC gamers to Advanced Micro Devices' graphics card. This launch halted the bleeding, but the company still needs to introduce new products this year that could possibly match the performance of NVIDIA’s graphics card. If the company successfully introduces such products, then it can claw back some expressive market share.
Conclusion
Advanced Micro Devices' bleeding may have stopped for now, but don’t consider it a good investment until it starts to regain market share from NVIDIA. The stock has rallied recently, and investors should use the rally to sell the stock and stay on the sidelines for the foreseeable future.
