Advanced Micro Devices (AMD 1.29%) became one of the more notable comeback stories of the last few years. The chip stock bounced back as CEO Lisa Su orchestrated a comeback and built a technical lead on longtime rival Intel (INTC 1.68%). Consequently, investors who dared to buy the stock at the lows hit in 2015 when many feared bankruptcy have earned a high-risk but massive reward.
AMD stock fell to a low of $1.61 per share in July 2015. At this level, $5,000 would have bought an investor around 3,105 shares. At the current price of roughly $91 per share, this investment would hold a value of about $282,640 -- a return of approximately 5,550%. This far exceeds the roughly 110% return for the S&P 500 over the same period. Also, the stock may have more room to grow as many analysts still consider AMD a hot growth stock.
AMD data by YCharts.
AMD in 2015
One can forgive investors for not wanting to buy AMD in the summer of 2015. At that time, AMD and other PC-related chip stocks such as Intel and NVIDIA (NVDA 3.65%) found themselves supporting what many saw as a dying product. Once companies such as Apple and Samsung introduced consumers to smartphones and, later, tablets, many consumers felt they no longer needed PCs. In 2015 alone, PC sales fell by more than 8%, marking what was at the time the fourth consecutive year of declining sales, according to Gartner.
This hit AMD particularly hard since it had consistently lagged Intel in market share. According to Passmark Software, Intel controlled 77% of the PC market in mid-2015, and that percentage had steadily climbed since 2012.
Furthermore, due to the three- to five-year cycles required for developing chips, an AMD comeback looked like a gamble at best. Since Su had only become CEO the year before, investors had no way of knowing if her plan would succeed.
Image source: Getty Images.
How Su changed AMD
It would also take more than a successful career to convince investors that Su could turn AMD around. After graduating with a doctorate from MIT, she worked for both Texas Instruments and IBM, later rising to the chief technology officer position at Freescale Semiconductor. Su then started at AMD in 2012 as senior vice president and general manager of global business units before becoming CEO.
Su applied her engineering and business experience to bet the company's fortunes on high-performance CPUs and GPUs, letting other businesses fall by the wayside. Also, Intel had prospered through the tick-tock cycle, advancing manufacturing in "tick" years and offering new microarchitecture during the "tock" cycle. To buy time, AMD pursued both processes simultaneously, according to an interview Su gave to CNN.
Through these efforts, AMD released its first Ryzen and Epyc processors in 2017. This helped send the stock above $10 per share by January of that year. In time, AMD began challenging NVIDIA in the GPU space. It won several contracts, and today, AMD processors help power Tesla's vehicles as well as gaming consoles such as Microsoft's Xbox and the Sony PlayStation. Moreover, due to internal problems at Intel, AMD took a technical lead in the CPU space. Now, AMD sells 7nm processors at a time when Intel has delayed the release of 7nm processors until 2022. This should ensure AMD's technical lead for the foreseeable future.
Putting the AMD comeback into perspective
The AMD story shows how much investors can profit from taking a chance on a troubled stock.
To be clear though, articles like this do not convey the dangers, risks, and emotions that come with buying a stock below $2 per share when investors see no concrete prospects for recovery. You can lose everything on such holdings, and you should not invest money that you cannot afford to lose.
Still, as AMD has shown, these investments can sometimes succeed -- even wildly succeed. If you have some spare cash, a small position in such a company could deliver outsized returns to the risk-tolerant, patient investor.
