AMD Has Big Plans for 2018

Thanks to a slate of new products that began rolling out in early 2017, Advanced Micro Devices (NASDAQ: AMD) is more competitive today than it's been in years. Its Ryzen chips compete with Intel (NASDAQ: INTC) in the PC CPU market, its Vega GPUs go head-to-head with NVIDIA (NASDAQ: NVDA), and its EPYC server CPUs are in the early stages of clawing back market share.

AMD announced a slew of product updates on Monday. The Ryzen family will expand in February with desktop chips featuring integrated graphics, followed by the launch of second-generation Ryzen chips in April. On the graphics front, mobile gamers will have Vega as a discrete graphics option in 2018. It's shaping up to be an eventful year for the perennial underdog.

Expanding Ryzen

When Ryzen first launched in March, the only chips available were desktop processors without any integrated graphics. This meant that the addressable market for Ryzen was limited to those with discrete graphics cards.

The launch of Ryzen Mobile late last year expanded Ryzen into the laptop market, providing a Ryzen CPU paired with Vega graphics. The missing piece has been desktop chips with built-in graphics. That will change in February when AMD fills in this gap in its lineup.

The first Ryzen APUs, featuring Vega graphics, are expected to be available on Feb. 12. The name of the game here is "good enough" gaming. The company claims that the chips will provide enough performance for gaming at a 1080p resolution. Any discrete graphics card will blow these chips out of the water, but there's certainly a market for budget gaming PCs.

Following this launch, AMD plans to refresh its Ryzen lineup with the Zen+ architecture during the second quarter. Zen+ will be built on a 12nm process, compared to the 14nm process employed for the current batch of Ryzen chips. Zen+ is a revision, not a major architectural revamp, so performance improvements won't be earth-shattering.

Big changes will come with the launch of the Zen 2 architecture, probably sometime in 2019. The Zen 2 design is already complete, and AMD promises improvements "in multiple dimensions." Chips based on Zen 2 will be built on a 7nm process, and the performance improvements will likely be significant. The follow-up to Zen 2, Zen 3, is also on track, expected to be launched by 2020.

Bringing Vega to laptops

AMD is also expanding its addressable market when it comes to graphics. The company launched its discrete desktop Vega GPUs in August, its reentry into the high-end graphics card market. This launch hasn't put a dent in NVIDIA's dominance, but it's certainly better than having no horse in the race at all.

Ryzen Mobile brought Vega to laptops, but gamers who want more firepower than what can be provided by an integrated graphics solution have no choice but to turn to NVIDIA's mobile discrete graphics. With the discrete Vega Mobile GPU becoming available this year, a new option is on the table. The chip is designed for ultra-thin notebooks, providing a viable alternative to NVIDIA.

Beyond gaming, AMD unveiled some details on its next-generation Vega GPUs. The company's first product built on a 7nm process will be a Vega-based GPU aimed at machine learning applications. This will come before Zen 2, so late 2018 or early 2019 would be a reasonable guess. NVIDIA has run away with the market for accelerators, and machine learning is one of areas the company has been intensely focused on for years. The next-gen Vega GPU could give NVIDIA a run for its money, although it will need to perform better than the first iteration.

A perfect storm

All of these new products are being announced against the backdrop of the ongoing CPU security bug saga. While one of the flaws affects CPUs from essentially every manufacturer, Intel is taking the brunt of the criticism. The Meltdown exploit strikes primarily Intel processors, and the fix will introduce a performance penalty in some cases.

This bad press could push consumers to give AMD products another look. Intel claims that the performance hit will be insignificant for the average PC user, so this may not matter much in the long run. But AMD will almost certainly try to milk Intel's PR nightmare for all it's worth.

AMD has a big year ahead of it as it expands its portfolio of products and competes more broadly with both Intel and NVIDIA. The company still isn't producing anywhere near enough profit to justify its stock price -- analysts expect adjusted earnings per share to total just $0.13 in 2017, putting the price-to-earnings ratio at a lofty 93.

AMD is going to need to put up some serious earnings growth in 2018 and beyond. These new products will certainly help the cause.

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Timothy Green 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.