AMD Must Deliver On This Promise to Survive 2014

Advanced Micro Devices is trying to execute a huge turnaround, while also moving into a new core market. This is a year for AMD to do or die.

Jan 2, 2014 at 10:30AM

Shares of Advanced Micro Devices (NASDAQ:AMD) surged 61% higher in 2013. The processor designer easily crushed the S&P 500 benchmark index, while chief rivals Intel (NASDAQ:INTC) and NVIDIA (NASDAQ:NVDA) struggled to keep pace with the market. Can AMD keep the fires burning in 2014?

AMD Chart

AMD data by YCharts.

Before looking ahead, let me just remind you that AMD's 2013 jump was more of a bounce off the bottom than a healthy growth story. The stock plunged 57% in 2012 and AMD's trailing earnings haven't been positive since 2011. This is a turnaround story in the making, with all the tremendous potential gains and huge operating risks that entails.

That said, Wall Street analysts do expect AMD's turnaround story to continue. The average forecast for 2014 points to adjusted earnings of $0.12 per share, up from a $0.12 estimated loss per share in 2013. Revenue is supposed to spike 11% higher this year, which would be AMD's strongest annual sales growth since 2010.

Jefferies analyst Mark Lipacis supported his optimistic forecast this way: "We hosted client meetings with AMD's CFO over the last two days, and left thinking the Street was not giving credit to AMD's gaming solutions, nor to AMD's potential to win back share in both notebooks and discrete graphics."

So AMD's future isn't completely chained to the ailing PC market. Lipacis noted opportunities for AMD to steal market share from NVIDIA in graphics and from Intel in notebook systems, but the "gaming solutions" comment hints at a larger trend.

AMD may not design chips for smartphones and tablets, but the company did produce semicustom chips for all three of the next-generation gaming consoles. And outside the attractive but relatively low-volume console market, AMD is open to designing custom solutions for any embedded computing situation. Two years ago, only 5% of AMD's sales weren't tied to PC systems; today, that ratio has surged to 30% as AMD diversified. Expect this trend to continue.

So AMD is looking at a fine opportunity to execute on the semicustom market in 2014. To do that, the company must spread the word of its custom design services and win the trust of the world's major electronics manufacturers.

But it's a race against time. AMD is burning cash in almost every quarter and not paying down a crushing debt load that results in $178 million of annual interest payments. The company operates with five times more debt than shareholder equity.

AMD's dwindling cash reserves won't last forever, and banks might grow tired of underwriting big loans to this cash-burning company. If AMD's turnaround doesn't accelerate into reliable cash profits in 2014, the company might be done for.

AMD Free Cash Flow (Quarterly) Chart

AMD Free Cash Flow (Quarterly) data by YCharts.

This is an extremely high-risk and high-reward situation, sink or swim, and it's better suited for gamblers than serious investors. If you simply must buy AMD shares today, make sure to stick to an amount you could afford to lose.

If AMD is too risky, what's the real top stock for 2014?
The market stormed out to huge gains across 2013, leaving investors on the sidelines burned. However, opportunistic investors can still find huge winners. The Motley Fool's chief investment officer has just hand-picked one such opportunity in our new report: "The Motley Fool's Top Stock for 2014." To find out which stock it is and read our in-depth report, simply click here. It's free!

Fool contributor Anders Bylund owns shares of Intel. The Motley Fool recommends Intel and Nvidia. The Motley Fool owns shares of Intel. Try any of our Foolish newsletter services free for 30 days.

We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.

Compare Brokers