AMD: Investors Should Not Be Fooled By Spectre-Related Headlines

About: Advanced Micro Devices, Inc. (AMD)
by: Roman Luzgin

News suggests AMD CEO Lisa Su admitted processors' vulnerability to Spectre issue only on January 11.

However, AMD disclosed this much earlier, on January 3, and nothing changed since that time.

AMD states the company's chips are not susceptible to Meltdown, and the risk of Spectre is "near zero."

While the stock dropped 4% on the news, it is likely the selloff was due to algorithms responding to the headlines. Any similar selloff will provide a buying opportunity.

AMD "finally" admits vulnerability to Spectre?

On January 11, all the tech news services teased the following headlines about AMD (AMD):

The reason for this coverage became the interview of Lisa Su given to Yahoo Finance, in which the CEO stated the following:

To clarify, for Meltdown, AMD is not susceptible. We don’t have a susceptibility to that variant. But with Spectre, AMD is susceptible.

Spectre is a 20-years old chip architecture flaw that has been recently discovered by a group of researchers. According to them, the crackdowns "could allow an attacker to read sensitive data stored in the memory, like passwords, or look at what tabs someone has open on their computer." Almost every computing system is stated to be vulnerable to attacks, although Meltdown exploit is only applicable to Intel's (INTC) chips.

The negative reaction to such news is obvious: if all the processors need to be patched/replaced, chipmakers will incur significant expenses and brand damage. Notably, Intel dropped as much as 9% from its level on January 2, the day prior to the announcement, as the corporation's products appeared to bear higher risks than those of AMD. AMD shares continued to trade near the level of $12, since the general consensus was that the company's chips are not vulnerable to attacks.

Chart INTC data by YCharts

However, during the after-market trading hours, AMD stock dropped as much as 4% right after Lisa Su gave the aforementioned interview.

(Source: Aurora trading platform)

But did we receive any new information from Lisa Su's Thursday interview? In other words, did AMD hide its vulnerability for about 10 days since the Spectre/Meltdown exploits were publicly revealed? If so, is the 4% drop just a beginning of a downward movement?

The company disclosed its processors' susceptibility earlier on January 3, nothing changed since that time

The short answer to these questions is "no." AMD revealed its vulnerability on January 3, with a press release named "Information Security is a Priority at AMD" and updated on January 11 after the interview. The company presented a matrix explaining the degree of risk for each of three exploits (Spectre 1, Spectre 2, Meltdown).

(Source: AMD website)

This information does not contradict in any way to what Lisa Su explained to Yahoo Finance. The corporation's chips are indeed susceptible to both variants of Spectre - Bounds Check Bypass and Branch Target Injection, - while Rouge Data Cache Load (Meltdown) exploit is not applicable to AMD processors. Nothing new has been discovered since the time of release, which is why the market's reaction is unjustified.

The company had to issue a clarification on January 11 to resolve possible questions. In the updated release, AMD confirmed all the previous information, while providing more details on each of the exploits. According to the company, the first type of Spectre issue is being addressed at the moment, and they expect all the potential threats will be eliminated shortly. As regards the variant two of Spectre, AMD still states the risk is negligible ("near zero") and will be tweaked with "microcode updates" to ensure maximum security.

As a result, it can be expected AMD processors will not suffer from a significant performance drop, especially when it comes to the new generations of data center solutions. Since the Spectre risk remains to be small for AMD and the company discloses all the information on time, I believe the selloff related to the aforementioned interview is not justified. Similar selloffs in the future should not concern investors, while pullbacks may be used to invest in the company.

The corporation has strong product line-up for 2018. The company will continue growing its revenue

Importantly, the drop in share price provides a good opportunity to invest in the company, since the prospects for 2018 are positive. The company is likely to continue growing its revenue double-digits, thanks to the strong product line-up and continuing crypto currency saga.

Hence, at CES 2018 AMD presented several promising products which will help the company boost its performance. The list includes new Ryzen CPUs and mobile APUs, Radeon Vega, and Vega Mobile, while 12nm ZEN+, 7nm ZEN2 and 7nm+ ZEN3 are expected to remain "on track." The company also shared the list of Epyc customers, which now includes Google Cloud, Amazon AWS, and many others. More details can be found in the article by EnerTuition.

All of this makes AMD more than competitive against peers such as Intel and Nvidia (NVDA), which is why the company's results are likely to beat expectations in 2018. Therefore, the stock is a compelling buy for 2018.

Any future selloff related to Spectre will likely provide a good buying opportunity

Overall, the negative reaction to Lisa Su "admitting" (once again) the processors' vulnerability to Spectre seems to be unjustified. The company responded immediately after the flaw was revealed to the public, and the company admitted that its processors are subjects to Spectre 1 and Spectre 2 risks. Since Meltdown is not applicable to AMD processor, while the level of Spectre threat remains low, I do not see significant reasons for a sharp drop in the stock price.

Since there was “no change" to AMD's position on the susceptibility of its chips to Spectre in ten days after the first press release, the selloff that happened during the after-market trading hours could be the result of trading algorithms responding to the headlines. Notably, the stock regained its positions on the following trading day.

The main takeaway here is that AMD already disclosed all the information about its processors' Spectre susceptibility and started to issue updates. Investors should not be influenced by the headlines such as those mentioned in the article. As the corporation has a solid product line-up for 2018, the stock remains to be a compelling buy.

My detailed analyses of AMD, Intel, Nvidia, and other tech companies can be found on my profile page. If you like my article and would like to stay up to date on the next one, you can click the "Follow" button next to my profile.

Disclosure: I am/we are long AMD. 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.