The markets are up today and so is our portfolio with Concho Resources $CXO gaining 3%. Concho Resources had better than expected earnings. Despite lower oil prices. They were able to increase revenues and profits by increasing profits. Of course, we have yet to see the effects of the coronavirus on oil prices and consequently on the oil companies in the long-term. Today, our second oil company, Parsley Energy PE will have their earnings.
Is AMD Stock a BUY
AMD $AMD (Advanced Micro Devices) stock price gained over 140% in the last year and over 3000% over the last five years. What's happening to AMD? The company became profitable. In 2015, they lost over $1 billion while last year they made over $300 million and their profits are increasing at a fast rate. But the revenues are not growing that fast and that's because AMD, like so many other semiconductor companies, has a cyclical business. There are two reasons for this: demand and supply for semiconductors and Moore's law. Moore's law states that every 18 months, the number of transistors on a semiconductor chip will double. In other words, every 18 months, there is a smaller, faster and cheaper semiconductor chip that is made. The profits and the stock price of AMD will go up as long as AMD can make the faster, smaller and cheaper chip faster than its competitors.
AMD has two main competitors, Nvidia $NVDA and Intel $INTC . With Nvidia, they compete mainly in the GPU market and with Intel, in the microprocessor market. AMD has a diversified business but they need to compete with two big competitors. There has been a higher demand for GPUs in recent years to mine cryptocurrencies. You'll see a correlation between Nvidia and Bitcoin $BTC prices in 2017-2018. Nvidia made the mistake of having too much inventory during the Bitcoin bubble and the stock crashed. AMD avoided this mistake.
In the coming years, there is going to be higher demand for AMD products with 5G, gaming, collaboration with Google on Google Stadia, etc. Will the stock price keep going higher? We need to look at the R&D expense of AMD. They are spending the least compared to Intel and Nvidia. Which one of these companies do you think has the highest probability of making the next cheaper, faster, smaller chip? Of course, the one spending more on R&D.
I don't know how high AMD stock will go but last time it peaked like this it crashed rapidly. Maybe it will be a tenbagger but I don't want to invest in a company where I have to wait and hope that they make a superior product. I prefer investing in companies where I am sure that it will make money. For example, Skyworks Solutions. It is going to make money from 5G. With AMD, I cannot do that. I cannot find the intrinsic value of AMD since its cashflows are unpredictable. It is outside my circle of competence. But from what I know about cyclical companies, you buy when the price is falling and you sell when the price is rising and right now the price is rising.
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