Everyone loves a bargain.
We love that feeling of discovering a secret gem that everyone else has neglected. Vintage vintage corvette with small scratches on the fourth panel that you can easily remove. Widescreen HD TV in the open box area of your electronics store.
You take the picture.
But even your smartest market hunters have nothing for investors looking for the “next big thing”. In fact, this speculative attempt to “enter early” often leads investors to heavy losses.
They get their emotions better, as they inflate what are essentially short-term market trends in the major stock trading executives.
This leads to unreasonable expectations and equally unreasonable stock prices.
It leads to irrational trading.
One of the best examples of irrational expectations this year is Advanced Micro Devices Inc. (Nasdaq: AMD).
In July, the stock was going up in an influx of revenue from the growing cryptocurrency mining market. Ethereum was the “next big thing”, and investors were speculating a lot about AMD’s value despite signs that this fad would not last.
Even Wall Street analysts were to blame for pumping AMD shares into Ethereum fashion, with some raising their ratings and price targets to, frankly, volatile levels. AMD shares quickly jumped into excess buying territory, driven by a fad and a wild rise in emotional investment.
At the time, AMD was due for a correction as “beneficiaries appear, and the most bearish contingent in the brokerage community begins to sound for valuation concerns and cryptocurrency traps.”
This week, Morgan Stanley did just that. The brokerage firm said that “sales driven by cryptocurrency mines for AMD graphic potatoes will fall by 50% next year, or a $ 250 million drop in revenue.” Morgan Stanley also noted that sales of video game consoles will fall by 5.5% in 2018, but this is a drop in the bucket for AMD, and investors are likely to expect this given the age of the current generation of consoles.
You can almost hear the hearts of cryptocurrency speculators breaking as AMD shares fell 9% after the report.
To remember the real reason you should invest in AMD, we need to go back to 2016. The company caught fire early last year when I anticipated some new chips, including its new CPU chipset (CPU), Ryzen and the new graphics processing unit (GPU) device, Vega. Both products had a significant promise and AMD expected strong sales once the chips were launched in the market.
But both Ryzen and Vega blew analysts’ expectations out of the water. When they hit the market earlier this year, Ryzen and his sister chip, called Threadripper, not only surpassed competing chips from Intel Corp. (Nasdaq: INTC), they beat them even in prices. At the same time, Nvidia Corp. (Nasdaq: NVDA) was touting its Titan Xp GPU as the fastest in the world, but AMD’s top Radeon Vega Frontier Edition GPU quickly stole that title.
As a result, AMD saw its market share in the desktop market grow roughly 45% to its highest level in 10 years at 31%, while Intel fell to 69%. It is also stealing market share from the server and data center from Intel through the increasingly popular Threadripper CPU.
And these are just the core business operations of AMD. When it comes to areas like virtual reality, driverless vehicles and artificial intelligence, AMD is already at the forefront and is poised to be a market leader.
Many of you at this point may ask, “But what about AMD’s poor earnings ratio last week?”
And I would argue with, “What poor earnings ratio?”
Just look at the numbers. AMD earned $ 71 million last quarter with revenue of $ 1.64 billion. Not only did this expect Wall Street, but they put the shame of last year’s loss of 50 cents per share on revenue of $ 1.31 billion. Moreover, AMD raised its full-revenue growth forecast from mid-to-high teens to over 20%.
So why did AMD shares plunge approximately 20% after such a stellar ratio? Because the company said fourth-quarter profits would fall 15% sequentially (though that’s still a 20% year-over-year increase). Once again, it all comes down to an irrational level of bargain hunting, and an emotional trade surplus.
Investing in Advanced Micro Devices
But you are lucky! This emotional storm has left AMD trading at a significant discount … and a fairly large bargain given its significant growth potential – AMD is expected to see sales grow around 17% next year, compared to 12.3 % for Nvidia and a significant 2.3% for Intel.
The stock has more than 30% rise over the next year. How many other big companies besides Alibaba Group Holding Ltd. (NYSE: DAD), can you say that?
So ignore the cryptocurrency hype and focus on AMD core products and its potential with key technologies like AI and data centers. I will not promise you a smooth ride, but it should be quite lucrative.