It's not an ideal time to own chip stocks because of the trade war jading the chip sector that has inextricable revenue links to mainland China.
But if you feel audacious and want a name to sink your teeth into that is hitting all the right notes, readers must look at Advanced Micro Devices, Inc. (AMD).
After all, what follows a trade war is trade peace, and the chips are the most oversold tech sector out there.
Intel Corporation's (INTC) loss is (AMD)'s gain.
It's a zero-sum game where companies are battling for the same contracts.
Chip companies are under relentless pressure to innovate and enhance bit growth and chip capacity.
They spend billions of dollars to retain and expand their talent pool and on R&D to produce the type of high-end chips for which end product companies clamor.
Sometimes, the development process stifles, delaying chip production and delivery of the chips.
Intel botching the 10nm (nanometer) process technology is a kick in the teeth opening up the pathway for (AMD) to harvest further market share gains.
Intel is experiencing a management crisis as of late with former CEO Brian Krzanich resigning in humiliation after details of an inappropriate relationship with an employee surfaced which breached company rules.
The delay is further proof that Intel fails to execute and develop chips relative to competition, and these announcements hurt investor sentiment and the bottom line.
AMD's comparable 7nm Rome is set to hit the market six to nine months before the Intel chips.
This time frame will allow AMD to make an all-out assault on the CPU market and adoptees will be plenty.
The recent success of AMD has coincided with the heaps of innovation generated by this reinvigorated company.
Namely the Radeon GPUs and Ryzen mobile processors have knocked the cover off the ball.
The Ryzen processors are hot because of their competitive power mixed together with a relatively lower cost.
With Intel on the back burner, these prominent chip models will boost earnings growth for AMD in the short term explaining AMD's meteoric rise from a year-to-date low of $9.50 on April 3, 2018, to an intraday high of more than $20 on July 30, 2018.
Any company that doubles in four months warrants my attention.
How did this all happen?
December 1, 2005 represented the high-water mark for (AMD) when shares surged past $40 only to crumble like a stale cookie down to $2 on September 1, 2008.
The price action was nothing short of horrific, and the three years of sequential decline was an investors nightmare.
The story starts in 1993 when AMD created a 50-50 partnership with Fujitsu called FASL to manufacture flash drives.
This monumental loss-making subsidiary later changed its name to Spansion and tore into AMD's profitability losing more than $250 million in its last nine months being an arm of AMD.
AMD divested from this business with Spansion spinning itself out into its own public company.
Spansion was a disaster operating solo leading the company to file for Chapter 11 bankruptcy on March 1, 2009 and sacking 3,000 employees without severance pay.
AMD's turnaround started in 2014 when it hired Dr. Lisa Su who was once vice president of IBM's semiconductor research and development center.
She replaced Rory Read whose PC background made him highly expendable and unsuitable for the future of AMD as well as lacking the technical pedigree to make the decisions for the long-term vision of AMD.
His background as chief operating officer of Lenovo Group, Ltd. influenced him to heavily bet the ranch of the PC flash drive market, which has been in sequential decline for years.
This masterstroke is paying dividends for AMD.
Out of the gates, Lisa Su presented her vision in May 2015 when she detailed her long-term blueprint focusing on developing high-performance computing and graphics technologies for three growth areas: gaming, datacenter, and "immersive platforms" markets.
The change in direction worked out for AMD increasing top-line growth from $4 billion in 2015 to $5.33 billion in 2017.
The outperformance continues with AMD ringing in $3.41 billion for the first two quarters of 2018.
Because of Lisa Su, AMD chips found their way into Microsoft Xbox consoles among other businesses and the long-term vision is playing out positively to the benefit of shareholders.
AMD goes mano a mano with Nvidia (NVDA) in the highly lucrative GPU segment and data center.
Many analysts believed there was no way to come out of this unscathed. But as we have found out, this market is not a winner-takes-all market and there is space for other players to take a piece of the pie.
The Data Center market is poised to eclipse $70 billion by 2021.
AMD server chip projects to command 5.5% of market share in 2019, up from the 2.2% market share in 2018.
Two years later should be even healthier for AMD whose market share will rapidly grow to around 9.5%.
Crypto mining-based purchases of AMD GPU's were all the rage in 2017 with their products flying off shelves like hotcakes.
Last year saw crypto mining make up a material 10% of revenue because of Bitcoin's dazzling run up to $20,000.
High demand for Ryzen and Radeon products continues unabated and this segment will take in more than $4 billion in 2018.
This division's performance is the main reason why AMD annual revenues will increase 47% YOY in 2018 after a YOY rise of 50% in 2017.
Not only are GPU chips needed for crypto mining, the main buyers of GPU are companies developing artificial intelligence and machine learning.
The data center business is tied to the cloud industry, which is one of the hottest parts of technology in the world.
These robust secular trends and AMD's migration to these premium businesses solidifies the genius decision to allow Dr. Lisa Su to steer the ship.
Veering away from the legacy business that cratered its share price down to $2 and being part of a high-growth industry with great products will fuel the share price skyward.
The technology sector has been rife with M&A activity in 2018 with successful and failed mergers happening left and right.
AMD has been rumored for takeover numerous times. The share price received short boosts highlighting the attractiveness this name commands to outside investors.
Top-line growth is what is driving AMD in 2018, and it is in the middle of a growth sweet spot.
Nvidia has gone up 1,750% in the past five years while laying claim to 70% gross margins in its vaunted GPU division.
It will be demonstrably bullish if AMD can mildly replicate this growth trajectory, and I believe it will.
The Mad Hedge Technology Letter has advised readers to stay away from chip companies because of the complicated trade war.
If the trade war subsides or even ends, semiconductor chips will be the first group of stocks whose shares explode to the upside.
In any case, it's always great to understand the premium names in each industry, and I am bullish on AMD.
After the spike to more than $19, a pullback is warranted but it won't be long before these shares go back into overdrive.
Directly after the macro headwinds pass by will be the preferred time to enter into AMD unless you are a long-term investor and plan to buy and hold.
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Quote of the Day
"Especially in technology, we need revolutionary change, not incremental change," - said cofounder and CEO of Alphabet Larry Page.
