Advanced Micro Devices’ (AMD, Financial) rally has cooled off over the last few weeks, which is understandable given the triple-digit appreciation since the lows of February. That said, I don’t think AMD’s rally has lost steam and the stock may as well be preparing for another move higher.
Everything depends on Zen
AMD was playing second fiddle to NVIDIA (NVDA, Financial) and Intel (INTC, Financial) last year. However, the company has staged an impressive turnaround this year mainly due to the launch of its new GPU architecture Polaris.
The company’s efforts in the virtual reality market—by launching its new and first Radeon RX 480 graphics card grounded on Polaris—have already started paying off. Moreover, they made a very smart move by focusing on the mainstream market first, as the RX 480 was priced at only $199.
Most importantly, at a relatively cheap price, RX 480 is capable of handling the most powerful virtual reality headsets, such as Vive and Rift. Although the price points of AMD’s GPUs are very competitive, the company faces tough competition from NVIDIA, as the latter has also launched its new GTX 1060 graphics card. The GTX 1060 has two versions (6 GB card and 3 GB card), which are priced at $249 and $199, respectively.
Both the cards are competitive, but Advanced Micro Devices is making some additional improvements against NVIDIA in the discrete GPU market. As a matter of fact, NVIDIA still holds the leader position in the GPU market, but Advanced Micro Devices’ gains should aid the company to snatch a considerable share of the virtual reality market.
In terms of CPU, Advanced Micro Devices is on its way to launch its new Zen architecture. Though the company has made major mistakes in the past, it has promised substantial performance enhancements in its Zen architecture.
Zen architecture might not be able to grab huge amount of market share from Intel, but the company believes that it will certainly narrow the gap between its own products and those of Intel. As per the company, Zen will enhance IPC by 40% equated to the prior generation products, which will result in a major performance upgrade.
Final words
Although I was bearish on AMD some time ago, I have since changed my stance. AMD doesn’t need to take massive strides forward. Even a little improvement in market share will lead to significant gains for shareholders. Consequently, I think investors should consider buying AMD heading into the earnings season as the risk-reward ratio is currently favorable for short-term investors.
Disclosure: No position.
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