When Lisa Su became Advanced Micro Devices' (AMD -0.35%) CEO on Oct. 8, 2014, the chipmaker's stock traded at about $3 per share. Today, AMD trades at just over $100 per share -- so a $1,000 investment in the chipmaker on Su's first day would be worth more than $31,000 today.
During those seven years, a $1,000 investment in AMD's rival Intel would be worth less than $1,600 today. Let's look back at how AMD generated such massive gains in such a short time.
AMD CEO Lisa Su. Image source: AMD.
How did AMD become a penny stock?
Between the first quarter of 2006 and the fourth quarter of 2014, AMD's share of the x86 CPU market plunged from 48.4% to 23.4%, according to PassMark Software. Intel's share increased from 51.6% to 76.6%.
AMD struggled against Intel for three main reasons: First, its acquisition of ATI in 2006, which formed the foundation of its discrete GPU business, diverted resources from its CPU business and forced it to aggressively compete against Nvidia.
Second, Intel struck back at AMD's budget CPUs with a new generation of 45nm chips in 2007, a year before AMD rolled out its first 45nm chips. Intel pulled PC makers away from AMD, and AMD struggled to match Intel's research & development and marketing firepower as it integrated its new GPU business.
Lastly, AMD's 32nm Bulldozer CPUs, which arrived in 2011, disappointed original equipment manufacturers (OEMs) and consumers with its dismal single-thread performance. All those mistakes caused AMD's revenue growth to stall out and decline from $5.65 billion in 2006 to $5.51 billion in 2014. Its stock, which traded in the low $40s in 2006, became a penny stock by the time Dr. Lisa Su took over.
How AMD made a comeback
Su brought AMD back from the brink with three main strategies: First, she diversified AMD's business beyond PCs and into gaming consoles.
Su previously led the development of custom APUs, which merged together AMD's CPUs and GPUs, for gaming consoles before she became the company's CEO. Sony's PS4 and Microsoft's Xbox One both used AMD's APUs when they arrived in late 2013, and sales of those chips turned AMD's enterprise, embedded, and semi-custom (EESC) business into a major growth engine.
Stable sales of gaming APUs generated fresh cash for AMD, reduced its dependence on CPU and GPU sales for PCs, and bought it more time to develop new chips. Sony and Microsoft also continued to use AMD's APUs in their newest PS5 and Xbox Series S and X consoles, respectively.
Image source: Getty Images.
Second, AMD went back to the drawing board to design new chips which addressed the Bulldozer generation's shortcomings. In 2017, it launched its Ryzen CPUs for PCs and Epyc CPUs for servers -- which were widely praised for their robust performance.
Lastly, AMD switched from GlobalFoundries, its former foundry unit which was spun off in 2009, to Taiwan Semiconductor Manufacturing (TSMC) as its main manufacturing partner for higher-end chips in 2018.
As a result, AMD started to produce more advanced chips than Intel, since TSMC had already surpassed Intel's internal foundry in the "process race" to manufacture smaller and denser chips. Intel also struggled with constant shortages and delays, which caused more OEMs to switch to AMD.
The market embraced AMD's new chips. Between the third quarter of 2016 and the second quarter of 2021, AMD's market share in CPUs jumped from 17.5% to a 15-year high of 44.1%, according to PassMark Software. Intel's market share tumbled from 82.5% to 55.8%.
Between 2015 and 2020, AMD's annual revenue soared from $3.99 billion to $9.76 billion. Its adjusted gross margin expanded from 28% to 45%, and its adjusted net income surged from $132 million to $1.58 billion. That's why its penny stock became a growth stock again.
But can AMD maintain its momentum?
Analysts expect AMD's revenue and adjusted earnings to rise 60% and 93%, respectively, this year, but its growth will likely decelerate next year for a few reasons.
AMD could still struggle with the ongoing chip shortages, and its shares of the CPU and GPU markets have been gradually shrinking in the second half of 2021 as Intel and Nvidia rolled out newer chips. The chip shortages have also been curbing Sony's and Microsoft's shipments of the PS5 and Xbox Series consoles, respectively, which were expected to boost AMD's EESC sales in 2020 and 2021.
I'm still bullish on AMD's long-term prospects with Dr. Lisa Su at the helm, but I doubt it will replicate its multibagger gains over the next seven years. Nonetheless, I still believe AMD's market cap could eclipse Intel's over the next few years -- especially if Intel's ambitious turnaround plans flop. It remains a great long-term investment in the semiconductor sector.
