Shares of Advanced Micro Devices
How it got here
Almost a year ago, I authored an article describing 10 reasons that I'd say "no" to AMD. Needless to say, my contrarian views didn't exactly go over well with readers, but it did indeed give me bragging rights thanks to AMD once again imploding during earnings season.
To say that AMD's second quarter was challenging might be the understatement of the week. For the quarter, AMD's revenue fell 10% over the year-ago period. Its computing solutions segment, which is responsible for three-quarters of sales, took a big hit. AMD suffered through weak demand from China and Europe, an inventory imbalance in its new long battery life Llano chips, lower unit sales and average selling prices of its server business, and rapid growth in tablet sales, which is crushing the outdated notebook market... and this all happened the second quarter. AMD's graphics segment saw sales remain flat year-over-year despite slower PC and console sales and pricing pressures.
Suffice it to say that AMD continues to lose ground to rival Intel
How it stacks up
Let's see how AMD compares to its peers.
AMD's underperformance is brutally apparent, with Qualcomm
|
Company |
Price/Book |
Price/Cash Flow |
Forward P/E |
5-Year Projected Growth Rate |
|---|---|---|---|---|
| AMD | 2.4 | 4.1 | 5.6 | 9.8% |
| Intel | 2.7 | 6.7 | 9.5 | 11.9% |
| NVIDIA | 1.8 | 10.6 | 11.4 | 15.8% |
| Qualcomm | 3.0 | 15.4 | 14 | 14.6% |
Sources: Morningstar and Yahoo! Finance.
You'll notice that despite the cheapest valuation of this group, AMD also has the slowest projected growth rate. Years of underperformance have left investors with a bad taste in their mouths.
Intel continues to maintain the lion's share of the microprocessor market and has possibly the most attractive valuation among these four. Taking into account its push into smartphones and tablets in which it'll be going head-to-head with ARM Holdings, Intel still has all of the makings of a high-growth tech company.
Apple and Microsoft
What's next
Now for the $64,000 question: What's next for AMD? The answer is going to depend on whether or not it can actually be consistent with meeting expectations, if it can use its new products to grab market share from Intel, and if it can maintain profitability by continuing to trim costs.
Our very own CAPS community gives the company a two-star rating (out of five), with 82.7% of members who've rated it expecting it to outperform. As you can imagine, I can be counted among the minority with a CAPScall of underperform that is currently up 34 points.
I'm just really not certain that AMD's pain is anywhere near over. Supply-side issues, weak PC demand, a move away from notebooks and into tablets, and Intel's dominant market share are all reasons to be pessimistic about AMD's future. Until I see concrete evidence from AMD that it's consistently growing, I plan to keep my underperform rating open.
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