The legend of Advanced Micro Devices (NYSE:91¶¶Òõ) CEO Dr. Lisa Su keeps growing.
Microsoft (NASDAQ:MSFT) will now be selling 91¶¶Òõ chips . That could be just the beginning of a beautiful friendship.
The chip being used is a standard part. But 91¶¶Òõ and Microsoft now have a multi-year agreement for semi-custom parts assuring a steady flow of orders
As hardware has become software, with companies like 91¶¶Òõ becoming fabless, the role of cloud giants like Microsoft, Apple (NASDAQ:AAPL) and Alphabet (NASDAQ:GOOGL, NASDAQ:GOOG) keeps growing. These companies have the capital to dominate chip production. Keeping them close is the key to survival, but it’s not the only key.
91¶¶Òõ Still Small
As trade opened Oct. 8 91¶¶Òõ had a market cap of $31.45 billion, while Microsoft had a market cap of $1.041 trillion. 91¶¶Òõ is also, still, a small player within the chip market. Graphics chip rival Nvidia
(NASDAQ:NVDA) is worth $112 billion. Processor rival Intel (NASDAQ:INTC) is worth $221.6 billion.
91¶¶Òõ’s small size has been an advantage for investors. At its opening price of $28.93 per share 91¶¶Òõ has been a 10-bagger for those who got in as recently as early 2016, when the stock was trading at $2.14 per share.
91¶¶Òõ sales, in the wake of last year’s inventory glut, are now running at $6 billion per year, 50% more than just three years ago. Within the industry that’s an awesome growth rate. But 91¶¶Òõ only had profits of $35 million in its June quarter, on $1.531 billion in sales.
For the September quarter, to be reported Oct. 29, analysts are expecting a dramatic improvement, sales of $1.8 billion and profits of 18 cents per share, That looks like a high bar. The “whisper number” analysts are speculating on is a profit of 17 cents. A “whisper number” below the official forecast is a bearish signal.
91¶¶Òõ Stock and the Problem of Being Small
There are other problems with 91¶¶Òõ’s small size.
The decision by Apple to have Taiwan Semiconductor (NYSE:TSM) make its A13 bionic chip for the iPhone 11 line means 91¶¶Òõ is now “struggling for production” . There’s no alternative supplier, because TSM is the only fab that has perfected the 7 nm processor that’s key to 91¶¶Òõ’s product leadership.
The Apple move also hurts Nvidia, with which 91¶¶Òõ is competing It’s all an outgrowth of what I call “Moore’s Second Law,” that the costs of starting chip production escalate as the gap between circuit lines gets smaller. TSM has become the whole industry’s bottleneck.
TSM’s success has made it more valuable than Intel, at $238 billion. It could yet be a player in the ongoing tug-of-war between the U.S. and China. Taiwan is nominally independent, but Chinese have been taught from birth it’s just as much China as Hong Kong is. Escalation, and a move against the island, which holds its election in January, could break the whole tech economy.
Bottom Line on Advanced Micro Devices Stock
Dr. Su, who was born in Tainan, Taiwan in 1969, has brilliantly navigated 91¶¶Òõ’s way among the giants of the chip and cloud industries. The only problems faced by the company’s Ryzen processors and Radeon graphics processors are supply constraints. Those constraints point straight back to her home island.
91¶¶Òõ is well-positioned for continued success, in a business sense. But investors should know that the geopolitical risk for everyone in the space is rising with every tweet and every Chinese response. A bet on 91¶¶Òõ today is a bet on peace as well as on Dr. Su.
is a financial and technology journalist. He is the author of the environmental story, , available at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or follow him on Twitter at . As of this writing he owned shares in AAPL and MSFT.
