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AMD In 2017, Is It Still Attractive?

Technology Investing profile picture
Technology Investing


  • AMD's stock price has exploded in the last year, is it justified?
  • Zen and Polaris have been released, can they bring sustained growth and profitability?
  • AMD's profitability still remains very strongly tied with the console business seasonality.

It has been over a year since I wrote an article on AMD (NASDAQ:AMD), and strongly advocated it because the upside was far more compelling than the downside. We had not seen the next generation architectures for their GPUs and their CPUs, although they were very much part of assessing the future of the company.

Now it is 2017. AMD has gone up dramatically, but does the company deserve the valuation? Is there still more upside? Why is AMD continuing to have such poor earnings?

If we look at the successes and failures of the past year, we should start with the consoles, and the semi-custom division. Both Sony (SNE) and Microsoft (MSFT) have released iterative improvements, and this bodes well for AMD. By doing so, they lock in their business, whereas an entirely new design would allow other vendors to compete. We also saw record shipments in Q3 of last year, which is the strongest quarter for the consoles. Clearly, this is a very favorable situation for AMD, and it shows no signs of weakening.

Unfortunately, also in Q3 of 2016, AMD issued 115 million new shares, further diluting the stock. It issued this stock to eliminate debt, and at the end of Q1 of 2017, had 939 million outstanding shares, as opposed to 793 million a year ago. It's not clear how much more dilution will occur, as AMD has granted Mubadala the right to buy 75 million shares at $5.98.

This is part of the new wafer agreement. It is up to you to determine how comfortable you are with this, but it is worth noting that companies that feel their stock is undervalued buy it back; issuing it shows AMD management felt pretty comfortable with the stock price at much lower valuations. On the plus side though, it does remove

This article was written by

Technology Investing profile picture
I primarily invest based on knowledge of technology, and rarely if ever try to time stocks. The only way I've been effective investing is by understanding the technology behind the products a company sells, and the market they sell in, while being dispassionate and unbiased.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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