Advanced Micro Devices, Inc. (AMD) Is a Phoenix and Not a Zombie, Probably

Intel will have its own alternative, and it will be the majority in that segment of the market. This is why AMD’s strategy of going after non-traditional spots like consoles is a good one. It might be lower margin, but AMD needs to stop fighting Intel head-to-head because it cannot win. Instead, it needs to focus on itself and win all the business it can, and avoid Intel when there is little hope of coming out with a profit.

Previous winner has most to lose

This means that ARM will be losing a portion of the tablets that it currently has through licensees or customers incorporating their cores. For any tablet where usability and functionality outweigh the importance of pure portability, an x86 core will be better. ARM’s dominance in phones will continue, but it might no longer be a part of the entire mobile and tablet space. Tablets and phablets can move to x86 processors in order to offer more flexibility and features, with the latter being less likely.

This change would normally not be a problem since smartphones are a growing field as well. However, ARM is valued very highly, and losing an entire segment of the market to x86 would weigh on the valuation. It has a PE of 84, but competition is heating up and the needs of the market are changing. I was hesitant at a PE in the 70s, but still thought it might be worth grabbing some since ARM was so important to mobile. Now, I think ARM should be avoided as the market changes, and after everything is done moving you can re-evaluate.

Conclusion

AMD has massive potential in the future, but it is still a speculative investment. That requires a more controlled position that is monitored closely. The next earnings report will be very important as positive results are expected. Having a miss could do a lot of damage to the stock. Intel is paving its own way, and it could gain traction in anything it jumps into. The company is not in critical condition, and has the power to make a big splash in anything they do.

It is still worth consideration, though now that the price has gone up a bit, I would actually go smaller in however I decided to trade it. ARM is a good company, but a bad stock in my opinion. I think it is just flying too high, and with new competition in certain parts, the stock looks weak even if the company is fine.

Nihar Patel has no position in any stocks mentioned. The Motley Fool recommends Intel. The Motley Fool owns shares of Intel. Nihar is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

The article AMD Is a Phoenix and Not a Zombie, Probably originally appeared on Fool.com is written by Nihar Patel.

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