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AMD: The Growing Bubble

TickerSquare profile picture


  • AMD reported sub-par earnings for Q4 2018.
  • Shares rallied significantly despite the meager results.
  • If current trajectory continues, the stock is likely headed for a cliff.

Photo by Marc Sendra Martorell on Unsplash

Investment Thesis

There was nothing in the latest AMD (NASDAQ:AMD) earnings report that justified the stock price much less a 26% subsequent rally.

This wouldn't be the first time the buyers got it wrong.

As can be seen in the above chart, the stock has been bid up unreasonably on multiple occasions only to dive subsequently. Latest spike was as recent as a few months ago.

The Results

AMD reported mostly in line for Q4 2018, but the all-important guidance for Q1 2019 missed badly. Not only the top-line guidance missed the estimates by over $200 million but also came in 12% lower QOQ and 24% lower YOY. That is very significant for a company with stratospheric valuations based on supposed "high growth".

Bulls point to a 9% expected yearly growth in 2019 as a positive sign, but that is not nearly enough to classify AMD as a high-growth company. In fact, growth rate is actually decreasing by 14%. That would normally spell disaster for a growth stock, but analysts and buyers are once again giving AMD a pass.

Quick Comparison

By comparison, Nvidia's (NVDA) revenue outlook for Q4 2019 represented a 15% QOQ decline and a 7% YOY decline. The stock sank 25% in the 2 days following the latest ER. The contrast is astounding.

Nvidia subsequently revised the outlook lower, and the stock dropped another 18% as a result of the revision.

Keep in mind that Nvidia is not nearly as expensive as AMD and consequently not priced for as much growth. Let's compare the valuations of the two companies.

The table below shows the trailing P/E for the two companies.

As you can see, AMD is 4 times more expensive. Trying to predict future earnings from

This article was written by

TickerSquare profile picture
To TickerSquare the stock market is an irresistible enigma begging to be solved.  Fully aware of being outmatched by an ever-evolving market, the battle must go on as more data is collected, more information is gathered, and more numbers are crunched. In the end, victory is measured by those rare moments when an unexpected move is expected or when blindsided, research has paved the way to adequate preparation for mitigating catastrophe.

Analyst’s Disclosure: I am/we are short 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.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (533)

LookingAtStocks profile picture
Okie Dokie, Pudd...go back to "occasionally investing"...LOL!!!!
puddnhead profile picture
I actually don't trade much, except during periods where I think there is a market turn in the making. I was pretty active in 2006, 2007, 2008, 2009, and last year, and *way* too active in the period ~1997-2005, but for the stretch 2010-2017 I just checked my brokerage history and I never had realized gains or losses in more than two stocks in any given year. A few years I had none.
I agree with the author. I like what AMD has been able to do but the premium placed on this stock is something only someone irrationally in love would be willing to pay for. Every day this stock could drop 8% just because its valuation is absurd with no new info or reports. This stock is purely a trading stock. Watch its ranges, wait for the bubbles to pop and let the lovers lift up your rebound for a quick buck.
LookingAtStocks profile picture
Agree...market is up 400 now...Nasdaq over 100...and AMD is up 4 cents...if you're buying and holding this stock and not trading the heck out of it, well then, the best of luck to you.
puddnhead profile picture
drawing conclusions about the quality of an investment from the current interday gain or loss is just dumb. When I looked at your self-description at SA and saw "Long-term equities investor" I had to laugh.
sekiam profile picture
@Bossco except it´s not really a gaming card. amd is poaching in nvidias 2000$ compute market (at least for quite some applications)
i´m not saying "get it while you can" but skim through the techgage article.
Bossco profile picture
@doggiecool - Here you go again. Poor junk digital trends junk reporting. Far better real reporting elsewhere. Also...
* Does not "save $100's" on total system basis. (energy consumption and related HUGE added heat handling, Motherboard selection/acceptance issues. Related Note: Hope AMD gets updates out quicker than usual.
* Repeated misinform (lie?): Is not sold out everywhere. Just released 2/10 and not even available on shelves/warehouses in most markets yet.

Just 2 examples of far better reporting:

AMD should do fine on REAL info, pumping exaggerative fairy tales hurts more than helps for REAL investors.
sekiam profile picture

you wont get any r7 if you haven´t gotten your hand on it yet (maybe a lucky shot if your fast enough).
who wants to game on that card anyways...
i agree with ur statement
" Related Note: Hope AMD gets updates out quicker than usual."
Bossco profile picture
@sekiam - They're available on Fry's and ebay, just not at list price. Will be interesting to learn how small the launch actually was in units because preorders took out the big warehousers (in one door and out the other) suggesting was only small allotments and I don't know any small retailers rec'd any on first launch.

It's an interesting play by AMD. I'm not the target market and, even if I were, am turned off by the extra 75 watts (that's a whole lotta heat in the box). Hopefully it takes a big bite nonetheless.
doggiecool profile picture
well boys and girls...

Todays release of R7 is stunning. read the reviews


saves gamers $100s and performs better.

no wonder they're sold out everywhere.

just curious if anyone has seen any projections on how upcoming PS5 and XBox releases will impact AMD.
05 Feb. 2019
i believe AMD's 9% percent growth for the year's revenue lumped toward the 2nd half 2019 is coming mostly from XBox / Playstation ramping. No way they are getting enough revenue from the older Epyc and 7nm Rome is just getting started.
doggiecool profile picture
general question to the gallery...

When AMD has the same revenues and margins of NVDA, what will their share prices be?

TickerSquare profile picture
@doggiecool Based on number of shares, right around $90
Mike Bruzzone profile picture
It's all about re-equilibrium as the production paradigm swings through absolute rest.

Mike's law entering sub nano on production economics are periods of dice in system disaggregation, then reintegration followed by disaggregation, followed by reintegration . . .

Bossco profile picture
@doggiecool - Who has time for impossible alternate reality questions? Extreme eye rolling exercise.

Non-Fiction for serious investor evaluation:
NET MARGIN: 37.79% vs. 5.50%

Go to YouTube search 'AMD Zen2' or 'AMD Rome' and let the computer gees educate you how good the AMD products will be comparing to INTL
puddnhead profile picture
I suspect that the difference is that AMD has talked about beyond Q1, and more to the point is forecasting a "hockey stick" graph for revenue etc, while Nvidia has not talked about anything beyond last quarter at all yet.
2x_Overhead profile picture
NVDA already haD its hockey stick.
2x_Overhead profile picture
"Cult" stock, huh? Cultist believe on blind faith. AMD longs are such b/c, at a minimum, it has been performing for the last 3-4 Qs. Especially the most recent Q, in the midst of universal macro headwinds, it still performs up to expectations and relatively outperforming its much bigger and more capitalized rivals--INTC & NVDA.

I guess the rational among us are drinking the cool aid.
You're not gonna get AMD at fair price until it stops growing and this turn-around story flops.

Either way it's too late( to get them at something called "fair price" EPS-wise)
As can be seen in the above chart, the stock has been bid up unreasonably on multiple occasions only to dive subsequently. Latest spike was as recent as a few months ago.

the spikes where not unreasonable,they where on product releases followed by not keeping up/matching with intel....this time with Dr Lisa Su,Zen/Epyc and intel missing a train or 2 AMD is in much better position than ever before.
Mike Bruzzone profile picture
@Jeff Bras

Last time AMD hit above $30 some volume buyers bought late price just under $30 and then realized caught on downward side of a crest position.

AMD announced a few products that were not quite shipping and the rest is history.

hold since $2 and keep reading short narrative
Mindbreaker profile picture
Reputations go down very fast in tech when manufacturers make inferior products. Intel already has the inferior product in the data center...but it is marginal. But that near parity is about to be crushed by double the cores, 4 times float...and likely a third less cost. AMD is a very small company compared to Intel. If you can't put 2 and 2 together there, you have issues.

The stock price is not a bubble it is a realization that in 6 months Intel will be embarrassed badly. No witty BS about glue is going to make customers doubt the emergence of AMD. Intel has nothing and will continue to have nothing for almost certainly more than a year and possibly much longer. Meanwhile companies will buy AMD servers, and stick with them because they will be cheap to upgrade.

Did the stock go up really fast? Sure, because it was depressed by nonsense about how it was going to tank in China, had an absurd inventory of video cards like Nvidea or will have a terrible first quarter. Investors realized the short BS was just that. Intel and Nvidea are blaming everything but AMD's competitive products...the more logical reason they are having issues.

Intel is valued at $222 billion. AMD is still under $25 billion. Plenty of ways to eat Intel's lunch, if AMD has the better product.

AMD long.
Mike Bruzzone profile picture
Who can provide granular assessment of this wccftech Intel released amazon infrastructure as a service benchmark showing Epyc getting whooped?


Is Epyc getting whooped? How? Why? Where in Amazon compute system infrastructure?

Do these Intel released benchments prejudice Epyc?

How? In what category across the compute infrastructure?

At Docket 9341 Benchmark result rigging on compiler optimation unreported is definitley a violation of that consent order.

Are their prejudicial optimizations, bias optimizations?

What is not readily seen behind these published IAAS results Amazon Instrance offerred up by Intel.

Mike Bruzzone, Camp Marketing.
Mike Bruzzone profile picture
Is it interconnect, what's the issue?

SPEC out of cache on left, is that correct, LinPack on CPU bus at right, is that correct what are the hard system differences in relation to so called benchmark indicators in the middle?

Seems Intel is showing the monolithic ring bus on dice advantage?

Bebunk . . . what are the answers?

Mike Bruzzone profile picture
AMD will reintegrate disaggregate dice as process reaches infinity?

Depends on the cost price of stacked and 2.5 in MCM?

Disaggregate is only a stepping stone to reintegration?

Depends on the adoption of high performane ethernet and exotic in package fabrics?

PancakeWednesday profile picture
@Mike Bruzzone

A lot of it is cherry picking workloads and using Intel compilers and what not. NUMA mode has also not been set to the optimal value for these workloads by the look of it. Anyone setting these up for real work will tune and optimise to get the best out of the instance.

Try the same thing with some I/O heavy database workloads and the picture will likely be different.

The cost of the machines is less, even if Amazon sell the instances at a price that appears to favour Intel in these results.

Think about it though, who would use the AMD instances if they could get better value from the Intel ones? No one. So there obviously are workloads where AMD will have better performance for the money.

And this is only on Naples I presume.
AMD will rip tomorrow on barron's comments:
03 Feb. 2019
Is a 6 month lead for AMD in process node advantage enough to convince laptop manufacturers to go through the troubles of switching over to AMD, then switching back again to Intel? One prime example is MSI, which is hesitating to swap over to AMD mobile cpus.
@PA Cant read it
just X out, i can read it.
03 Feb. 2019
Does one think big cloud customers are willing to commit big time to AMD, and then only to switch back again to Intel after 1 or 1.5 years? I just don't think so... it would be too much trouble for the customers. Intel's big ship is starting to move... counterpunch coming later this year or over next year.
somedata1 profile picture
sold at 33/share.
RyzenFan profile picture
Good for you, I thought about selling at $34, but hold off. AMD hit over $43 twice, back in 2000 and 2006, now with all the more competitive products AMD have now, AMD will hit new high in the next couple of years. If wasn't for the big tech sector correction and crypto coin burst, AMD would been over $40 already. I'll take my chances and wait, besides I'm long since $2, so risk is minimum.
@somedata1 I had thought of a full exit at $32, and repruchase an eventual sub-$22/share price, but alas, I figured I'd ride it out. Still up 100%, so I'm not too sad.
Exact same boat, but we might be called out as "greedy" rather then longs
The Jan 2021 PUT at $20 strike is selling for $4.3. So there are people willing to pay $4.3 betting AMD to fall below $15.7 by 2021, with Rome launching soon, and Milan in deep development. Free money.
Beth Kindig profile picture
Good article. Profit margin on AMD is too low while PE is priced to perfection. Not a good combo.
RyzenFan profile picture
Sounds more like Tesla
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