The article was written by Motek Moyen Research Seeking Alpha’s #1 Writer on Long Ideas and #2 in Technology – Senior Analyst at I Know First.



AMD Stock Outlook

Summary:

I reiterate my Buy Rating for AMD. AMD’s strategy of focusing first on marketing its new Polaris GPUs is paying off well for investors.

The commercial release of Radeon 470 and Radeon 460 Polaris GPUs will further accelerate AMD’s campaign to steal discreet GPU market share away from Nvidia.

In spite of its massive six-month return of 267%, AMD remains a compelling long-term bet for Momentum-minded investors.

AMD’s current Price/Sales ratio of 1.38 is still notably lower than Nvidia’s P/S ratio of 6.52. Intel’s P/S ratio is also higher at 2.90.

Current long-term algorithmic forecasts are also still favorable for AMD.

In spite of Mark Hibben’s series of negative Seeking Alpha articles, investors still pushed Advanced Micro Devices’ (AMD) stock price to soar above $6.70. Hibben failed to heed my I Know First algorithmic-based prediction last April that AMD still had upside potential. I explained again last May that AMD’s 2016 rally is due to its notable market share improvement in discreet GPU sales against Nvidia (NVDA).

My Seeking Alpha article also explained why AMD’s management is delaying its 14-nm Zen-based processors to concentrate on marketing its 14-nm Polaris GPUs. I discussed how AMD will fare better pouring all of its 2016 efforts competing against Nvidia’s Pascal GPU. I predicted that AMD’s stock price would soar from the company concentrating on sub-$200 Polaris GPU products – rather than on releasing Zen-based x86 processors this year.

It was (and still is) my opinion that AMD’s future stock market performance will be better if it avoid tangling with Intel’s (INTC) huge inventory of unsold 14-nm Atom/Broadwell/Skylake processors.

The six-month return chart below should be prima facie evidence that my previous algorithmic-influenced Buy ratings for AMD were on the money. AMD’s 6-month return is a massive +267.75%. This is notably higher than NVDA’s 6-month return of +145%. My point is that most investors ignored the disparaging articles of Hibben and they went long on AMD over the last four months.

(Source: Google Finance)

AMD Stock Price’s Momentum Is from Mass-Market Strategy of Polaris GPUs

The mass-market pricing tactic being used for Polaris GPUs should further accelerate AMD’s hell-bent campaign to regain the GPU market share it lost to Nvidia in 2015/2014. AMD had a terrible stock market performance in 2014 because back then, 4 out 5 customers bought Nvidia discrete GPUs.

The June release of the budget-friend Virtual Reality-ready, $200 14-nm Polaris Radeon RX 480 was perceived by investors as AMD’s biggest tailwind for this year. Hibben was right that there is going to be little profit for AMD to sell low-cost new GPUs. However, I and other investors approved of CEO Lisa Su’s low-ball pricing.

Undercutting the price tags of Nvidia’s 16-nanometer Pascal GPU is the easiest way for AMD to generate more revenue and regain market share in discreet GPU sales. AMD, as a debt-laden company, must prioritize growing its revenue streams first before thinking of higher margins on its hardware products.

I am ¼ Chinese so I understand the inherent advantage of volume-based, low-margin marketing strategy. AMD will likely see little improvement in its bottom line this year. However, I expect investors to still rally around AMD’s stock if the company beats revenue estimates for the next two remaining quarters of 2016.

AMD’s OEM partners have released the more affordable Radeon RX 470 and Radeon RX 460. The $109 starting price tag of the Polaris RX 460 is going to disruptive against Nvidia’s discreet GPU business. AMD’s stock price will likely breach the $7 price barrier within the next 30 days after sub-$150 Radeon RX 460 hits global retail chains.

AMD Is Still Has A Very Low Price/Sales Ratio

It is my firm conviction that the discreet GPU industry is largely dominated by low-margin products that Nvidia is unlikely to focus on. AMD’s budget-friendly Polaris GPUs will help it gain 30-35% market share in discreet video cards. Consequently, investors boost AMD’s stock price if the management can deliver year-end 30%++ market share in discreet GPU sales. My new year-end price target for AMD is $7.50.

This $7.50 forecast is also due to the much lower Price/Sales valuation of AMD. Compared to Nvidia’s 6.52x Price/Sales valuation, AMD’s current stock price of $6.73 only has Price/Sales valuation of 1.38x. This huge valuation discrepancy should inspire more speculators to keep on betting on AMD’s stock/options.

Past Successes with AMD

I Know First has correctly predicted the movements of AMD before. In the 3-month forecast below, AMD had a signal strength of 174.00 and a predictability indicator of 0.38. AMD returned 87.16% by the end of the forecast showing I Know First’s past success with AMD.

Furthermore, on April 1st, 2016, an I Know First research analyst published a SWOT analysis of AMD. He believed AMD would increase in accordance with the I Know First algorithm. Since the article was published AMD increased 136%.

Conclusion

The future stock market performance of AMD will largely depend on the sales performance of low-cost Polaris GPUs. AMD’s management therefore only needs to show marked improvement in discreet GPU sales to keep AMD’s stock momentum.

AMD is a pseudo-momo stock right now. We all know talk of profit margins is never a factor in the market performance of momo/pseudo-momo stocks. It is okay for investors to ignore Hibben’s theory that low-margin Polaris GPUs are unlikely to unseat Nvidia’s throne as king of high-end discreet GPUs. It is more important for us to consider that there’s still money to be made on high-volume sales of sub-$200 GPU products.

(Source: getaom.com)

My Buy rating for AMD is again, of course, supported by the positive algorithmic forecasts from I Know First’s deep learning predictive neural network. AMD still touts buy-me signals from I Know First’s long-term forecasts.

To reinforce my reiterated Buy rating for AMD, I would also like to share that this stock has excellent go-long monthly technical indicators. The chart below should be prima facie evidence that my buy-side investing ideas are often backed by solid technical pattern trending.