Lately the price of AMD (AMD) has been falling consistently, as if investors have lost all hope. As a long time fan of AMD and a current shareholder, I was let down to hear that their most recent price surge was rooted in acquisition rumors. On the other hand, I'm happy to hear they've been adding former top members of Intel (INTC) and Apple (AAPL) to their roster.
With Jim Keller, Apple's former Chief Architect, AMD is likely preparing to make a strong push into the mobile chip-making arena. AMD chips are already available in some tablets, a move which was just announced officially in February of this year. This combined with plans to mimic the success they've had in China again in India, where they already have 15% market share, could lead to notably improved earnings in the next few years. AMD's managing director for India and South Asia, Ravi Swaminathan, says that we can expect "explosive growth" in India with regards to PC usage. Mr. Ravi Swaminathan also thinks that AMD's Fusion chipset (now officially called HSA, or Heterogeneous System Architecture, due to a copyright issue), which includes a graphics card and a CPU on the same chip, will drive purchases because of its low power consumption.
The HSA Foundation (whose key members are members of AMD) is devoted to creating and adhering to standards that allow code to be written cross-platform for different HSA devices. The good news here is that many large name manufacturers (including Samsung, which is traded on the Korean Stock Exchange) have already agreed to embrace the Heterogeneous System Architecture. Other large companies which are part of the HSA foundation are Texas Instruments (TXN) and ARM Holdings (ARMH). Although AMD has been focusing on making HSA chips, they are still racing head-to-head with Nvidia (NVDA) to produce the world's fastest graphics cards, a title which theirs have earned repeatedly, and making price-competitive isolated CPUs.
With regards to investor sentiment, analysts are more bullish. Trefis gives a valuation of $5.71 per share, and their community is 99% bullish, 1% bearish with a separate average price valuation of $12.09 per share. Although UBS (UBS) recently downgraded the stock, changing their price to $4.00, practically every public price estimate is set above it's current price. FBR Capital (FBCM) has reiterated an outperform rating twice this year on AMD, and Barclays reiterated their "equal weight rating" and adjusted their share price to $9.00 per share, back when AMD was trading near $8.00 in April.
Of course some skeptics, short sellers and naysayers will point to the trend of decreased desktop usage over the last few years and an increase in mobile usage, which AMD has yet to prove its place in. These are valid concerns, but the fact that AMD has been establishing a global presence ensures that where desktops are still used they will be needed. Further, I predict that they will establish themselves in the tablet market eventually, as their cheaper processors (compared to Intel) will likely fit well with some cheaper tablets, which are evidently quite popular. They also have 24 of the 100 top supercomputers, which is definitely good advertising.
The next problem with AMD is the amount of insider selling activity. In the past year, by insiders, or those who are required to file with the SEC when trading AMD, 280,000 shares have been sold and only 8,000 have been purchased. Either the insiders know something, or they're going broke. Or both: the two could be related. Jokes aside, the truth is that it's not actually a big deal, as CEO Read Rory alone still owns 260,000 shares, and other officers are still holding above 200,000 shares as well.
AMD's historical market cap and share value are two more notable features. In 2009, it bottomed out at around $1.80 per share and over $1 billion in market cap. That's still almost 50% of its present value of $3.66 per share. However, with regards to previous highs, we see that AMD reached over $18 billion in market cap and $40 per share in January of 2006, which is over 1000% its share value and 700% its market cap now. To be fair, in many cases stocks never make it back to their all-time highs. But, in the case of AMD, I don't think it's time to press the panic button yet.
The gist: AMD's price has been plummeting this year due to speculation and decreased earnings, including their first negative surprise in three years. The stock still has plenty of value, so long as nothing terrible is hiding it should eventually recover. It will be a great buy if they make a profitable entrance into mobile computing and continue expanding their presence oversees. And it should still be a good hold if they do at least one of those things successfully.