2 Risks AMD Investors Shouldn't Ignore

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Advanced Micro Devices (NASDAQ: AMD) wowed investors with its second-quarter report in late July, thanks to market share gains in central processing units (CPUs) and strong graphics processing unit (GPU) sales that were driven by cryptocurrency-related demand. The company has done well so far to gain market share in areas dominated by NVIDIA (NASDAQ: NVDA) and Intel (NASDAQ: INTC), powered by a revamped product lineup targeting both high-end and mainstream PCs.

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But AMD management believes that the company isn't done yet, as its recently launched products, such as the EPYC server chips, have yet to show their true potential. Additionally, AMD still hasn't launched chips for the notebook PC market, so there is a chance that it might continue gaining more market share.

Now, it won't be surprising if AMD manages to make a deeper dent in its target markets. But this isn't going to be a cakewalk, as both NVIDIA and Intel are stepping up their game to ward off AMD's threat.

Intel is trying cut AMD to size in CPUs

Intel has ceded some of its CPU market share to AMD lately, but Chipzilla has come up with a smart strategy to fight back. The first batch of Intel's recently launched eighth-generation Core chips are aimed at the notebook PC market, while AMD's consumer-grade Ryzen Mobile and commercial-grade mobile Ryzen PRO chips won't hit the market until early next year.

This gives Intel a time advantage over AMD. What could hurt AMD even more is that the new eighth-generation chips will be used in more than 145 laptop and notebook designs from various manufacturers, with the first wave of devices hitting the market in September. This isn't surprising as original equipment manufacturers (OEMs) would ideally want to update their devices with the latest hardware before the onset of the holiday season, when sales are traditionally strong.

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Additionally, OEMs are also aware of the fact that over 450 million devices in circulation are older than five years. So, they didn't waste much time in committing to Intel's latest generation chip, as it promises twice the performance of those old computers. AMD might have missed an opportunity here by waiting so long before bringing its notebook-centric CPUs to the market.

This could bite AMD in the long run, as notebook PCs are estimated to account for 40.4% of personal computing devices in four years' time, while the share of desktop PCs will shrink to 36%.

Vega might not be good enough

AMD has built a lot of hype around its Vega GPUs, promising that they have the potential to take on NVIDIA in the premium end of the market. This could be the icing on the cake for AMD after its aggressively priced Polaris GPUs managed to shake NVIDIA's dominance in the mainstream market.

But it turns out that AMD might not find similar success in the high-end market. AMD's RX Vega 64 GPU, priced at $499, is supposed to compete with NVIDIA's GTX 1080, which is priced the same. Though the performance of the GPUs is almost identical, as pointed out by my Foolish colleague Timothy Green, AMD's card consumes a lot more power when compared to NVIDIA's. Therefore, the RX Vega 64 will be costlier to run.

Of course, AMD is offering a liquid-cooled version of the GPU, but this will increase the price by $200. Moreover, investors should also note that the Vega is being compared to a NVIDIA graphics card that's more than a year old.

The GTX 1080 was launched in May last year, and NVIDIA followed it up with a refreshed GTX 1080 Ti this year that promises a 35% performance boost. The refreshed NVIDIA GPU has a starting price of $699, so it won't be surprising if consumers go for this card in place of the liquid-cooled RX Vega 64 that sells for an identical amount.

What's more, it is rumored that AMD is losing money on each RX Vega 64 GPU sold at its suggested price of $499. The chipmaker is reportedly struggling because of higher component pricing due to availability issues of high bandwidth memory, which makes AMD a risky bet, as Vega's success might not result in any bottom-line gain.

The Foolish bottom line

AMD seems to have handed over the initiative to NVIDIA with the Vega launch, while Intel has moved swiftly to capture the notebook PC market. This could hurt AMD's growth in the upcoming quarters.

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Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Nvidia. The Motley Fool recommends Intel. The Motley Fool has a disclosure policy.