Shares of semiconductor firm Advanced Micro Devices (NYSE:AMD) have been soaring. AMD stock is up almost 40% so far this year as investors flock to tech stocks in a bid to protect their portfolios from pandemic-related turbulence.
The biggest catalyst for the semiconductor space is the rollout of 5G, which has caused a surge in demand for chips compatible with the new, faster network.
AMD looks poised to benefit from this rise in demand.
That makes it a good choice within the industry for long-term investors, much like the other stocks I examine with my 5G Highway Super Portfolio.
AMD Stock Will Be a 5G Winner
AMD stock is a smart pick in the 5G space for a few reasons, but perhaps the most compelling is gaming. Advanced Micro Devices’ chips are being used in some of the big-name consoles, including Sony’s (NYSE:SNE) upcoming PlayStation 5 and Microsoft’s (NASDAQ:MSFT) Xbox.
With the rollout of 5G, the cloud gaming experience is seen improving exponentially — a fact that is not lost on gamers. A Ribbon Communications survey showed that gamers around the world are anxiously awaiting the full adoption of 5G. Importantly — they’re more than willing to pay for a top-notch experience.
The gamers interviewed by Ribbon were those who spent a significant amount of time playing before the pandemic struck. But since then, the number of people interested in gaming has skyrocketed.
As the gaming space continues to grow, so will demand for processors and AMD has proven to be a worthy player in the space.
Winning Over Intel
Another big reason AMD stock looks like a good long-term play is the fact that the firm is winning the war with Intel (NASDAQ:INTC). The fact that a smaller player like AMD was able to come in and grab market share from INTC sends a powerful message about what the firm is capable of. But it also sets AMD on a path to strong growth and increasing profitability.
Just this week, Intel announced that its seven-nanometer production process was facing setbacks. That further expanded the gap between AMD and INTC, giving Advanced Micro Devices a two-year production lead over Intel.
That’s a huge space with which to steal market share, especially in the server market where INTC was a dominant player.
Jefferies’ Mark Lipacis believes that Intel’s failure to execute could open the door for AMD to steal roughly 30% of the firm’s market share over the next two-to-three years. In four-to-five years Lipacis says that figure could grow to 50%.
Intel isn’t the only one losing market share to AMD either. The firm has proven itself to be a strong contender in the semiconductor space. The stocks in my 5G Highway Super Portfolio and Investment Opportunities embody similar elements, including leadership positions in key technological advancements.
Growth Ahead
There will be quite a few near-term catalysts in store for AMD as well. While volatility is likely to continue to plague the stock market, the Christmas shopping season and holiday launches of the gaming consoles its chips support should help AMD it.
Plus, while the pandemic presented a difficult supply chain scenario for the semiconductor space, it also offered a windfall to AMD stock. Remote learning and working has become the norm for many households around America, something that is likely to persist at least through the end of the year, if not longer.
That has caused a surge in demand for data-center chips, which AMD also manufactures. That should keep AMD stock afloat through the end of the year. Even in the event that a coronavirus vaccine is approved in the autumn, it will take time to distribute it. Schools are unlikely to revert back to in-person lessons only until 2021 at the earliest.
As for remote working, many believe that’s here to stay. That could create a new wave of demand for AMD’s data center chips that doesn’t let up even as the pandemic subsides.
— Matt McCall
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Source: Investor Place