AMD's Advance Sits On Weak Fundamentals, But With Room To Grow

And Yet Growth May Be The Key

AMD grew its revenues pretty quickly over the past several years. In 2017, they popped up to nearly 25% revenue growth. Right now their price sits at 2.93x sales. Compare that to INTC who sits at 3.34x and NVDA at 14.28, and if the increase in market share continues, as well as improvements in margins, AMD could be undervalued at its current levels.

So now consider the following scenario: AMD achieves a comparable P/S ratio as Intel, with similar net margins to a few years ago, say 15%. What would that look like? Taking the current items into consideration, the share price would climb from ~$19.30 today to ~$22.00. The earnings per share for 2017 would have jumped up near $0.80+, giving a P/E of 27.5x. The point is that if AMD manages to find a way to simply mimic the other companies at the lower end, they can justify their current and possibly higher value.

Quantum Leap

If you turned on any science or news station in the past year, you’ve probably heard about the advances made in quantum computing. Without getting too wonky, quantum computing appears to be the future of increasing processor capabilities. While traditional computing is comprised of 1s and 0s, quantum computing can do 1s and 0s as well as superposition where it can be a 1 or a 0 at the same time. Additionally, the technology looks to be using entanglement, which could lead to further advances in reading and transmitting data.

The importance of quantum computing cannot be overstated. The first company that would develop a truly marketable and commercial quantum computer would essentially put all others out of business. AMD, even though it spends nearly 25% of revenues on R&D, hasn’t made the foray into quantum computing in any significant way. Intel, on the other hand, is a leader in the research and development of the new technology. But, the big difference is that Intel does this at or below the percentage of revenue that AMD does. Effectively, Intel is doing more with its research and development more efficiently, on the same current products as AMD, but also on future technologies.

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Disclosure: I have no interest in any stocks mentioned, and no holdings in those companies. This article presents only my opinions. I am not receiving compensation for it. I am not in any way ...

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