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Naman Shukla
Naman Shukla
Articles (220) 

Making the Bear Case for Advanced Micro Devices

Company's rally is overhyped and likely will not last long

July 11, 2016 | About:

Advanced Micro Devices (NASDAQ:AMD) has rallied considerably this year. Investors believe the company’s new Polaris architecture will pave the way for its turnaround. Even if Polaris is a success, it will not be enough to justify Advanced Micro Devices' triple-digit rally. Although I was bullish on the stock just a few months ago, it may be time to sell.

RX 480 draws more power

Advanced Micro Devices and its foremost rival NVIDIA (NASDAQ:NVDA) both have released their new architecture this year with major improvements. NVIDIA launched some new graphics cards based on Pascal architecture, GTX 1080 and GTX 1070, mainly for the high-end market, whereas Advanced Micro Devices has launched new graphics card Radeon RX480 based on Polaris architecture, primarily for the mainstream market.

Advanced Micro Devices has made a nice move by placing its emphasis on the mainstream market, and it will surely help the company win back some market share, but one should also keep in mind that NVIDIA is the leader of the graphics card industry and knows how to rule the market. Therefore, it is certain that NVIDIA will soon launch new graphics cards for the mainstream market that will prove to be a tough competitor with Advanced Micro Devices’ cards.

Moreover, according to the Tom’s Hardware and PC Perspective, it was reported that Advanced Micro Devices’ RX 480 is drawing more power as compared to its rated power of 150W TDP. In several games, the card draws around 190W. It draws 20W more than the standard maximum slot power of 75W. This results in many problems; with long use, it could burn your motherboard’s PCIe slot.

What’s next?

It is likely that Advanced Micro Devices will launch a new PC processor grounded on Zen architecture at the end of the year. Zen accounts for the company’s new approaching microarchitecture and is supposed to fix the significant performance problems that beleaguered the prior generation of the company’s CPU and allows Intel (NASDAQ:INTC) to snatch market share.

The company detailed that Zen will comprise a 40% enhancement in IPC, a measure of single-threaded performance, compared to prior generations of CPUs. However, one should also keep in mind Advanced Micro Devices’ history of overpromising and underdelivering, like that happening in the case of RX 480.

If Advanced Micro Devices’ Zen architecture failed to meet public expectations, then it could cause many problems for the company.

Conclusion

While Advanced Micro Devices' new products will be better than its last cycle of products, it will be difficult for it to justify the current rally. Investors should book profits and sell the stock.

Disclosure: I don't hold a position in any of the stocks mentioned in the article.

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