AMD: A Play of Growth and Recovery

Advanced Micro Devices (NASDAQ: AMD  ) is an often-forgotten company with a large presence in a recovering growth industry. It benefits directly from the growth of Sony's (NYSE: SNE  ) PlayStation 4 and Microsoft's (NASDAQ: MSFT  ) Xbox One; AMD supplies the graphics and visualization chips for both devices. Also, in its core business, PC and laptop chips, it and Intel (NASDAQ: INTC  ) have given recent reasons to be optimistic about a potential recovery. However, AMD is not often considered a choice investment with regard to these two industries, although it should be.

Consoles are selling fast
Both Microsoft and Sony launched new game consoles late last year, the first in six years. Demand has been high, as each company saw its consoles sell at least one million units within 24 hours after the launch.

Now, nearly six months post-launch, Sony's PlayStation 4 has emerged as the preferred console. The PlayStation 4 has sold more than 7 million units, while the Xbox One has sold 5 million in the same period.

Obviously, both Microsoft and Sony benefit from the demand for their consoles. In particular, the success of the Xbox One was, in large part, responsible for Microsoft's 14.3% increase in revenue last quarter; Sony has yet to report earnings for the quarter following the PS4's launch.

However, AMD is an under-the-radar beneficiary; research firm IHS estimates AMD receives close to $100 for every unit sold. With 12 million total units sold, AMD is creating a lot of revenue from this segment. Furthermore, it was because of strong sales in consoles that AMD's graphics and visual solutions business increased 118% year-over-year, and why the company was able to grow revenue 28.4% year-over-year in its last quarter.

Therefore, because of these two game consoles, AMD is now a fast-growing company, one that has increased in value by 65% in the last 12 months.

A recovering business
If AMD's entire business was graphics and visual chips, there is no doubt the stock would be a high-flyer, perhaps a momentum stock. However, computing solutions, which includes PCs and laptop chips, continues to be the bulk of its business.

With that said, the rise of smartphones and tablets has, consequently, created double-digit sales declines in PCs and laptops over the last two years. Fortunately, this is a business that is now showing signs of a recovery.

For example, AMD has continuously lost market share in this space to Intel, but in AMD's last quarter, revenue fell 12% year-over-year in this segment. While this looks bad, the company's year-over-year losses were 13% and 15% in the third and second quarter, respectively, of last year, thus showing some improvements.

Moreover, Intel is currently trading at 52-week highs after announcing a bullish quarterly report. In that quarter, revenue from the same division saw a 1.5% year-over-year decline, which is far better than what's been reported in previous quarters. Albeit, this improvement shows significant advances from double-digit year-over-year declines in sales of PCs.

Therefore, if PC sales continue to climb, or at least show sustainability, Intel could continue to trade higher and sentiment surrounding AMD could be boosted.

Final thoughts
AMD has seen vast improvements over the last six months, mostly due to the success of new console sales. However, if PCs can improve at least a little bit, AMD can thrive.

Currently, AMD shares are trading higher by 10% following the company's first-quarter results. These gains are a reflection of both better-than-expected sales in its PC segment and bullish revenue from console sales. But, more importantly, operating income went from a loss of nearly $100 million last year to positive $49 million this year.

Therefore, at 0.5 times sales, AMD is far cheaper than Intel at 2.5 times revenue, and it has significant top and bottom-line improvements. As a result, AMD might prove to be a strong investment for the remainder of this year, as its gain on Monday could be the start of a longer trend.

6 stock picks poised for incredible growth
They said it couldn't be done. But David Gardner has proved them wrong time, and time, and time again with stock returns like 926%, 2,239%, and 4,371%. In fact, just recently one of his favorite stocks became a 100-bagger. And he's ready to do it again. You can uncover his scientific approach to crushing the market and his carefully chosen six picks for ultimate growth instantly, because he's making this premium report free for you today. Click here now for access.


Read/Post Comments (0) | Recommend This Article (3)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2922397, ~/Articles/ArticleHandler.aspx, 9/3/2015 7:05:27 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Brian Nichols

Brian Nichols is the author of "5 Simple Steps to Find the Next Top-Performing Stock: How to Identify Investments that Can Double Quickly for Personal Success (2014)" and "Taking Charge With Value Investing (McGraw-Hill, 2013)". Brian is a value investor, but emphasizes psychology in his analysis. Brian studied psychology in undergrad, and uses his experience to find illogical value in the market. Brian covers technology and consumer goods for Motley Fool. Brian also updates all of his new and current positions in his Motley Fool CAPs page. Follow Brian on Twitter and like his page on Facebook for investment conversations and recent stories.

Today's Market

updated 9 hours ago Sponsored by:
DOW 16,351.38 293.03 1.82%
S&P 500 1,948.86 35.01 1.83%
NASD 4,749.98 113.87 2.46%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

9/2/2015 3:59 PM
AMD $1.77 Up +0.06 +3.51%
Advanced Micro Dev… CAPS Rating: **
INTC $28.60 Up +0.78 +2.80%
Intel CAPS Rating: ****
MSFT $43.36 Up +1.54 +3.68%
Microsoft CAPS Rating: ***
SNE $25.47 Up +0.59 +2.37%
Sony Corp (ADR) CAPS Rating: **