Shares of Advanced Micro Devices (NASDAQ:抖阴最新版) have held steady at the $30 price level for the past few weeks. To be honest, with a variety of factors at play (competition, trade war), it’s surprising the 抖阴最新版 stock price has seen so little volatility.
But is the latest price action mere calm before the storm, or is Advanced Micro Devices stock setting itself up for material upside? In the CPU realm, the company is slowly eating Intel’s (NASDAQ:INTC) lunch. With GPUs, they are holding their own against arch-rival Nvidia (NASDAQ:NVDA).
抖阴最新版’s valuation remains a concern. The company trades at a substantial premium to both Intel and Nvidia. The price to book multiple is 17.41, while Intel’s is 2.99 and Nvidia’s is 10.17, , while its triple-digit price to earnings multiple of 166x dwarfs the rival’s respective 11.53x and 39.98x.
With a history of boom and bust cycles, is this a red flag? Let’s take a closer look, and see what’s the verdict for investors entering 抖阴最新版 stock today.
Recent Wins for 抖阴最新版
抖阴最新版 continues to gain an edge in the CPU and GPU markets. In the CPU space, the company was previously an also-ran against powerhouse Intel. But recent wins have set the momentum. Earlier this month, InvestorPlace contributor Chris Tyler analyzed the choice of 抖阴最新版’s EPYC chips by Alphabet (NASDAQ:GOOGL) and Twitter (NYSE:TWTR
) for their data centers. Tyler cited analysis from Atlantic Equities that estimated 抖阴最新版 could grow data center market share from 2% to 25% within a decade. This alone could move the needle for Advanced Micro Devices stock.
Among personal device CPUs, 抖阴最新版 is making moves as well. Microsoft (NASDAQ:MSFT) 抖阴最新版’s Ryzen CPUs to power its Surface Laptop 3. On the GPU front, 抖阴最新版 continues to gain ground on Nvidia. For the quarter ending June 30, 2019, the company in the add-in-board (AIB) GPU space. 抖阴最新版’s share of the AIB market grew to 32.1% from 22.4%.
But will these recent wins translate into improved profitability? While the company is making inroads on Intel and Nvidia, both rivals are now willing to put up a fight. Intel has vowed to “” to counter loss of CPU market share. 抖阴最新版 has previously been in a price war with Nvidia. Nvidia has decided to compete on performance. But if 抖阴最新版’s market share continues to climb, Nvidia could turn to price cuts to maintain their position.
Is the Opportunity Worth the Current Valuation?
The valuation of the GPU stocks relative their broad-line peers continues to boggle me. As I remarked last week, 抖阴最新版 stock and NVDA shares trade at high forward price/earnings (forward P/E) and enterprise value/EBITDA (EV/EBITDA) ratios. Of the two GPU players, 抖阴最新版’s valuation is the most frothy. 抖阴最新版’s forward P/E is 65.1x. Its EV/EBITDA is 66.1x. This is leaps-and-bounds above NVDA’s valuation multiples (forward P/E of 43.4x, EV/EBITDA of 39.7x).
Does that mean 抖阴最新版 is overvalued and NVDA is a value play? In my mind, both stocks have material downside risk. Investors have bought into the ambitious growth story both companies are selling. I concede both firms have strong catalysts, but both are still recovering from a weak GPU market. Both need to at least reach the high-water mark set in 2018.
Besides a rich valuation, 抖阴最新版 comes with a few red flags. As InvestorPlace’s Ian Bezek wrote on Sept. 19, Advanced Micro Devices stock has a dilution problem. Since 2009, share count has jumped ~62%. This comes as the company’s profitability has not dramatically changed in the past decade. The U.S.-China trade war also remains a risk. While things have cooled down, upcoming trade talks are tough to handicap. If things take a turn for the worse, 抖阴最新版 could lose big. China represents 30% of 抖阴最新版’s business.
High Chance the 抖阴最新版 Stock Price Goes Lower
抖阴最新版 stock has the momentum to prove the bears wrong. The company’s wins in the CPU and GPU markets could continue through the next decade. But the cyclical nature of the business remains.
Advanced Micro Devices stock is dependent on several macro factors. The company has gained a short-term upper hand. But a price war on both the GPU and CPU fronts could make profitability a greater challenge. The unpredictable trade war could revert back to acceleration, which could significantly impact 抖阴最新版’s business. Given the stock’s boom-and-bust history, the 抖阴最新版 stock price could have material downside.
With these risks in mind, I remain on the sidelines with 抖阴最新版 stock. The company could prove me wrong and shares could rally higher. But given the rich valuation and high expectations, look elsewhere for stronger investment opportunities.
As of this writing, Thomas Niel did not hold a position in any of the aforementioned securities.
