Competitors demurred
I think it’s a major broadside against rival Intel Corporation (NASDAQ:INTC), because Intel has x86 processors, too. But, it’s nowhere to be found with these consoles. I’m not sure if Intel hated the margins and walked away, like NVIDIA, or if AMD just made an offer that couldn’t be refused.
I like some of the stuff NVIDIA is doing, but its stock does not reflect the strength of the business. Project Shield is interesting, but will be facing stiff competition. I still see handheld gaming devices mostly for children, but the bigger money is with older gamers.
Intel Corporation (NASDAQ:INTC) is facing a shrinking PC and notebook market. Both companies should be doing everything possible to generate more demand for their parts, and make use of their expensive manufacturing equipment. Intel has its foundry business, which makes chips that others have designed, but the company was built with its own chips.
I’m a dedicated PC gamer, though I do have consoles, and I will probably always own a desktop. I have powered my computers with Intel chips, but I know that PC gamers are a minority. After getting myself a tablet, I questioned whether I would get a notebook ever again. Intel might be making a push to mobile, which would explain why the company let AMD have consoles. I don’t think Intel is so focused that it can’t try for a spot in consoles. Demand is demand, even if it’s at a lower price. The alternative is making less money, and even the foundry business might see shrinking margins over time.
My planned trade
I think I’ll drop my consideration of NVIDIA calls. I haven’t bought them yet, but I was considering them. I think I will move to something crazier, like January 2015 calls for AMD. I would avoid Intel until I figure what it’s going to do, and if it will be successful. I don’t think I’m jumping the gun on AMD, since consoles are expected out by the end of the year. In the meantime, there’s plenty of time for build-up and additional news regarding sales projections for the consoles and what it means for AMD. If they catch fire, then there will be more production runs and different versions, like the slim editions. AMD will be with the consoles for the entire generation.
One year ago, AMD was over $7. I have over a year and half for AMD to do something more substantial. I’m considering a strike price of $7, because that strikes me as cheap, while still being in the realm of possibilities. On the other hand, even $5-$6 is double, so my reasoning actually suggests buying AMD. The news is good and my target is very high, but it allows me to invest less money. In return, the probability of success is lower. It will be a week or more before I take a position.
The article AMD Powers the Heart of the Next Console Generation originally appeared on Fool.com and is written by Nihar Patel.
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