When it comes to computer processors, Intel ($INTC) is company to beat. When it comes to mobile processors, Intel barely has anything to do with the phone or tablet space. (This market is dominated by companies like Samsung and Qualcomm.) For processors in connected devices like smart watches and AI-enabled speakers, Intel is also sorely behind the times.
Yet when it comes to good ol’-fashioned computers, Intel makes a killing. Every single modern Apple computer uses an Intel processor. Most Windows-powered computers come with Intel processors. PC builders favor Intel processors for their performance when it comes to games, media production, and virtual reality applications. Perhaps that’s why the company recently announced that during their latest quarter, they made $14.8 billion in revenue and have an operating income of $3.6 billion.
Intel isn’t the only processor manufacturer in town. Advanced Micro Devices, or AMD ($AMD), also makes processors for non-Apple personal computers, along with devices like the PlayStation 4 and the Xbox One. They also sell their processors at a lower price than Intel, their direct competitor. For years, the company the company struggled to make a profit, but they finally achieved profitability last year.
Now, AMD is seeing an increase in sales and consumer demand. Things never looked better for the scrappy processor company. Some fans and investors alike finally feel that the company is ready to compete with Intel. There’s just one thing standing in their way.
AMD’s stock is down by over 25%.
AMD beat analysts’ estimations for their quarterly revenue and earnings. Normally, this would be a good thing. Yet for AMD’s investors, simply beating their earnings is not enough. Investors had faith in the company’s ability to grow and compete with Intel, which caused their stock to increase by over 20% since the beginning of the year. Apparently, the company isn’t growing fast enough for many investors.
Investors want AMD to be an overnight success.
AMD’s recently released Ryzen processors hold their own against Intel’s most powerful consumer-grade processors, making them a cheaper and attractive alternative. Game console sales are also up, which means more demand for AMD’s console processors. Yet these aren’t AMD’s only money makers. AMD also makes graphics cards, which don’t sell as well as the ever-popular NVIDIA ($NVDA) line of products. The company even produces memory, desktop chipsets, and SSD drives, though they’re far from the leading provider of these items.
The price drop might be part of a technical correction.
A technical correction is an asset’s drop in value after a long period of increasing. AMD investors were overtly positive on the company without much evidence to suggest the company will grow exponentially. After releasing their quarterly earnings yesterday, the company proved that they’re growing, albeit at a much slower pace than expected. This provided no evidence that the company would grow in the way that investors expected them to, causing less demand in the stock than before.
Should you invest in AMD?
The company is doing okay, but they need to continuously turn a profit if they want to stay afloat. They also need to greatly increase sales rather than the modest increases announced yesterday. If you feel AMD will provide a much-needed challenge to Intel in the future, be sure to do your research in the company before you invest. If you think AMD will only make small increases and not the huge increases investors expect, you might want to put your money elsewhere.