The coronavirus epidemic has crushed stocks worldwide. Even multinational semiconductor company Advanced Micro Devices (NASDAQ:AMD) is no exception, as AMD stock fell 14% last month due to supply chain disruptions caused by the pandemic.
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Despite the potential drop in sales, AMD’s diversified revenue mix has put it into an excellent position to weather the storm and stay on track for a strong showing this year.
Let’s take a closer look at the reasons why AMD stock will emerge as a winner out of the coronavirus chaos and why it’s a must-have for your portfolio.
The Growth of the Work From Home Economy
It’s no secret that the coronavirus-led crisis has led to several organizations adopting a work from home culture. Talking about the situation, CNBC’s Jim Kramer said the current Covid-19 crisis didn’t reveal anything regarding our collective move to a more telecommuting culture but that the “outbreak’s pouring fuel on the stay-at-home fire.”
With more employees working from home, the demand for laptops, network peripherals and communication services is rising dramatically. Companies such as Zoom Video Communications (NASDAQ:ZM), a cloud-based video conferencing tool, are reporting a massive spike in demand for its services.
Social media platforms such as Twitter (NYSE:TWTR) and Facebook (NASDAQ:FB) have also witnessed a surge in engagement. All these developments point towards an increase in the demand in the networking and data center space.
Speaking of which, Intel (NASDAQ:INTC) has dominated the sector with an over 95% market share. However, the year-over-growth in its data center segment was down 19%.
A strong showing in the fourth quarter allowed Intel to post a 2% increase in its data center segment. AMD, on the other hand, is steadily chomping away at Intel’s market share in the sector with the success of its Epyc processors and Radeon Instinct GPU accelerators.
The data center segment constitutes 15% of its $6.73 billion in revenues in the past year, and with AMD ramping up volumes, expect the sector to record double-digit growth.
Intel completely obliterated its competition in the aftermath of the 2009 financial crisis. Still, with AMD’s current progress, the results will be much different if the coronavirus leads to a prolonged recession. CFO Devinder Kumar, states that the company aims to receive 30% of its 2023 sales from data center products, which is 15% over the 2019 figure.
Strong Financial Performance
AMD’s financials have been on a tear for the past three years with sizable growth in its revenues and gross margins. In the words of its Chief Executive Officer Lisa Su, “2019 marked a significant milestone in our multi-year journey as we successfully launched and ramped the strongest product portfolio in our 50-year history.”
Revenues were up by 50% in the past year, mainly driven by the Computing and Graphics segment. Gross margins increased by 7% primarily due to the ramp of 7nm products.
Operating profits and net incomes have also witnessed a steady increase in the past year. Perhaps the most encouraging sign for the company is the reduction of its debt by $524 million and a massive 300% increase in the free cash flows.
The CEO predicts that the company will achieve 20% revenue growth in the next four years and will hit gross margins of more than 50%. She stated that AMD was maintaining its revenue forecasts of $1.8 billion for the first quarter.
Although the weakened demand in China will impact sales, revenues in other sectors are in line with the estimates, which would result in a 28% to 30% increase in revenues for 2020.
PC Gaming: A World of Opportunity
The PC gaming market is growing enormously, with the growth of esports and popular multiplayer titles. Most esport tournaments are played on PC’s which is driving up demand for high-end processors and graphic cards.
Nvidia (NASDAQ:NVDA) is the market leader in the discrete GPU space with a 69% market share. However, with a cost-effective pricing model for the RX 5700 and the RX 5700 XT GPUs, AMD managed to gain significant ground in the past year. AMD also poses a significant threat to Intel’s shaky position in the video-gaming laptop market.
The new third-generation Ryzen 4000 processors for laptops were revealed at the CES 2020 conference. These two are the best performing mobile laptop CPUs in the series and were developed with mobility in mind. The processor is likely to affect sales of Intel’s top-of-the-line i9 9880H will emerge as a serious threat to its dominance in the coming years.
Bottom Line on AMD
If you’re thinking about investing in the best recession-proof stocks, the AMD stock has got to be in your list. The shift in the working culture presents a golden opportunity for AMD to outperform its competitors in the first and second quarter of 2020.
With its innovative GPU and processors, the company is poised to gain significant ground against Nvidia and Intel. Therefore, AMD is a strong buy in my book, and you should grab it at a discount right now.
As of this writing, Muslim Farooque did not hold a position in any of the aforementioned securities.
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