Most investors likely know three main things about Advanced Micro Devices (AMD -0.49%):
- It's the second-largest producer of x86 CPUs after Intel (INTC -2.52%).
- It's the second-largest supplier of discrete GPUs after Nvidia (NVDA 0.22%).
- It was nearly rendered obsolete by both larger rivals before its current CEO, Lisa Su, brought it back from the brink of bankruptcy.
Su's revival of AMD, which started in 2014, sparked the stock's gain of nearly 2,000% over the past eight years. Intel's stock price rose less than 80% during that same period. That turnaround story has been well documented, but smart investors will likely also want to be aware of these three additional facts about AMD.
1. It's a "fabless" chipmaker
AMD was once an integrated device manufacturer (IDM) like Intel. IDMs design and manufacture their own chips at their own first-party foundries. However, maintaining first-party foundries and upgrading their systems to produce smaller and denser chips is a very capital-intensive process.
To eliminate those costs and streamline its operations, AMD spun off its foundry business as GlobalFoundries (GFS 0.06%) in 2009. It then became a "fabless" chipmaker that outsourced its production to third-party foundries like Taiwan Semiconductor Manufacturing (TSM 1.21%) and Samsung instead.
AMD also initially outsourced its chips to GlobalFoundries, but it stopped relying on its former foundry division after it halted its development of 7nm chips in 2018. AMD subsequently relied on TSMC to manufacture its most advanced CPUs.
Meanwhile, Intel stuck with its IDM model even as it fell behind TSMC in the "process race" to create more advanced chips. As a result, AMD's partnership with TSMC enabled it to produce smaller, denser, and more power-efficient CPUs than Intel over the past several years.
2. Intel is finally waking up
Intel's failure to keep up with TSMC, its ongoing production delays, and abrupt leadership changes all resulted in a massive loss of market share to AMD over the past six years.
Between the third quarters of 2016 and 2021, Intel's share of the x86 CPU market plunged from 82.5% to 60.2%, according to PassMark Software. AMD's share jumped from 17.5% to 39.7%.
But over the past four quarters, Intel seems to have woken up again under Pat Gelsinger, who took over the CEO position last February. Instead of following AMD's example and becoming a fabless chipmaker, Gelsinger had Intel double down on upgrading its first-party foundries to catch up to TSMC.
Intel also released new chips to counter AMD's Ryzen CPUs for PCs and Epyc CPUs for servers. Intel's latest chips still aren't as power-efficient as AMD's, but they're helping it tread water as it upgrades its foundries.
That tighter discipline has enabled Intel to regain some lost ground against AMD. Between the third quarter of 2021 and the second quarter of 2022, Intel's market share rose 6.2 percentage points to 66.4%. AMD's market share dropped 6.3 percentage points to 33.4%.
AMD previously benefited from Intel's big blunders, but that heyday could end soon as Gelsinger overhauls Intel's entire business.
3. Don't overlook its gaming console business
Investors often consider AMD's CPU and Radeon GPU businesses to be its core growth engines. However, the company also provides custom APUs -- which merge together a CPU and GPU on a single chip die -- for Sony's PS5 and Microsoft's Xbox Series S and X consoles. AMD also previously supplied its APUs for the PS4 and Xbox One.
When Lisa Su took over, AMD relied heavily on steady sales of these APUs to generate fresh cash as it overhauled its CPU and GPU businesses. These chipsets also give it a competitive advantage against Intel, which doesn't power any major consoles with its chips, and Nvidia, which only powers the Nintendo Switch with its Tegra chips.
If AMD starts to struggle against Intel and Nvidia again, it can still fall back on its APU business as it develops new CPUs and GPUs. Its gaming APUs brought in a large portion of the Enterprise, Embedded, and Semi-Custom (EESC) revenue, which generated 43% of its revenue last year.
Is AMD's stock worth buying now?
AMD's stock price tumbled nearly 40% this year as investors fretted over inflation, rising interest rates, and slowing PC sales in a post-lockdown market. But after that steep sell-off, its stock now looks historically cheap at 23 times forward earnings.
AMD's stock might remain volatile for the foreseeable future, but its future still looks bright. Investors who believe Su will continue to keep Intel and Nvidia on their toes should consider picking up a few shares of this growing chipmaker before the market warms up to the semiconductor sector again.