Does Advanced Micro Devices, Inc. (NASDAQ:AMD) Have A Bright Future?

November 06, 2017, 10:06 am ET, BY Simon M.- Contributor| Editor: Thomas H. Kee Jr. (Follow on LinkedIn)

Advanced Micro Devices, Inc. (NASDAQ:AMD) stock is currently performing well after tanking in June with much of the company’s growth being driven by demand for its processors. However, most investors would like to know whether the company has a bright future, which I shall try to prove or disprove by analyzing the company’s current prospects.

Article Summary

AMD is curving a niche for itself in the CPU and GPU markets.

The company has a significant growth potential in the virtual reality market.

AMD’s financials are not robust.

Here’s the trading report on AMD.

AMD’s Ryzen family of processors have been doing extremely well in the CPU market where the company currently poses a significant threat to its main competitor, Intel Corporation (NASDAQ:INTC). The company’s second quarter report indicated that AMD had taken some market share in the CPU segment from Intel, which was actually confirmed by Intel’s CEO, Brian Krzanich.

The company is also performing well in the Graphics Processing Units (GPU) segment given that it recently signed a deal to supply GPUs to Apple Inc. (NASDAQ:AAPL). This is a major achievement for the company as Apple is a top-tier customer, which is likely to boost AMD’s reputation as a respected global GPU manufacturer.

However, the company is not performing well in the datacenter business segment as it has zero market share in this industry. Despite this disadvantage, AMD’s EPYC family of processors targeting the cloud server market might allow the company to start competing in this space.

AMD has a major opportunity in the virtual reality (VR) space given its recent acquisition of Nitero, which was developing wireless VR headsets. This acquisition could allow AMD to become a market leader in the VR industry similar to what its competitor NVIDIA Corporation (NASDAQ:NVDA) has done with autonomous driving technology.

Expert opinion is divided on whether AMD is a good long-term investment given that the company has low free cash flow levels, which means that it has to take on more debt. Some might argue that this bodes negatively for investors in the company who may not be paid a stable dividend any time soon.

Other experts believe that AMD has significant upside potential as compared to its peers in the semiconductor industry who are priced at higher price to sales valuation multiples as compared to AMD. For example, Taiwan Semiconductor Mfg. Co. Ltd. (ADR) (NYSE:TSM) and Applied Materials, Inc. (NASDAQ:AMAT) have a price to sales valuation multiple of 6.500 and 4.085 respectively as compared to AMD’s 2.659.

The question remains whether AMD is a reliable growth stock for long-term investors.

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