Superior Micro Units (AMD -2.54%, The inventory has crushed the broader market over the previous three years because of the firm’s fast progress in income and earnings. AMD’s efficiency has been boosted by gaining market share in opposition to larger rivals comparable to Intel (INTC -1.70%, and its presence in standard merchandise like Sony‘s (Sony -2.09%, ps and Microsoft‘s (MSFT -1.67%, Xbox console.
It would not be shocking to see AMD preserve its spectacular momentum in 2022 and stay a prime progress inventory for Catalysts.
Nonetheless, traders should not miss some pink flags that might ship AMD’s shares tumbling. Let’s check out three elements that might show to be AMD’s Achilles heel in 2022.
1. Intel’s Resurgence May Give AMD Sleepless Nights
The lack of Intel’s aggressive edge has been one of many largest elements driving AMD’s progress through the years. AMD’s market share edge within the central processing unit (CPU) house has supercharged the corporate’s income and earnings, thanks primarily to a complicated manufacturing course of that allowed it to see Chipzilla acquire traction and buyer acceptance.
However it seems to be like Intel is on a highway to redemption, as its newest Elder Lake processors are exhibiting indicators of pulling again a stake from AMD. Intel’s share of gross sales in German retailer Mindfactory jumped to 30% in November 2021, a document excessive for the yr. Intel accounted for 23% of gross sales in Mindfactory in October 2021, indicating that the launch of its new competing chips which are on par with AMD’s choices by way of manufacturing course of might assist it flip the tide.
Intel’s new manufacturing course of is permitting it to make processors that aren’t solely sooner but in addition priced competitively than AMD’s choices. On condition that Intel hopes to additional refine its manufacturing course of with Raptor Lake chips in 2022 after which transfer to a 7-nanometer course of node subsequent yr, AMD should be on its toes.
After the launch of the Elder Lake processors, AMD has reportedly reduce costs to make sure the competitiveness of its chips. So Intel’s resurgence can be unhealthy information for AMD, because the latter has had an incredible run within the CPU house, having fun with a mixture of robust quantity and pricing energy that might threaten if Chipzilla continues to execute properly. could fall in.
2. Ingredient shortages could be one other problem
The enterprise, embedded and semi-custom (EESC) enterprise has been one of many pillars of AMD’s excellent progress for the reason that launch of the newest era consoles by Sony and Microsoft. The corporate’s third-quarter income from the EESC section grew 69% yr over yr to $1.9 billion, and robust gaming console demand was one of many causes for this enormous leap.
Nonetheless, plainly console makers are discovering it troublesome to supply elements and manufacture sufficient tools to fulfill robust demand. NintendoFor instance, it slashed its Swap console gross sales forecast to 1.5 million models for the present fiscal yr. Equally, Sony is predicted to gather 15 million models of PlayStation 5 within the ongoing fiscal yr, which is scheduled to finish in March 2022, down from an earlier estimate of 16 million models.
Moreover, Sony’s manufacturing companions imagine that the corporate could discover it troublesome to fulfill its goal of manufacturing 22.6 million models of PS5 within the subsequent fiscal yr. An analogous story is unfolding with Microsoft’s newest Xbox console, which is predicted to be briefly provide this yr as a consequence of chip shortages.
So AMD’s gross sales to Microsoft and Sony might take a success if console makers are compelled to cut back their manufacturing this yr as a consequence of part shortages. That is one other potential pink flag that AMD traders have to be careful for, as its EESC enterprise might lose momentum as a consequence of decrease console gross sales.
3. Nvidia dominates the graphics card
AMD has been unable to make a lot progress in opposition to NVIDIA (NVDA -2.08%, Within the graphics processing unit (GPU) market previously yr. In accordance with John Peddie Analysis, Nvidia managed 83% of the discrete graphics card market within the third quarter of 2021. For comparability, Nvidia managed 82% of the discrete GPU market within the fourth quarter of 2020, which implies it hasn’t given AMD an inch on this profitable market.
It is price noting that AMD was as soon as giving Nvidia a run for its cash within the GPU market and managed a big portion of this house. Nonetheless, the launch of Nvidia’s Ampere graphics card in 2020 modified the equation. These playing cards introduced enormous efficiency features at enticing costs. Nvidia is predicted to step up its sport in 2022 with the launch of its next-generation Ada Lovelace graphics card, which rumors counsel could possibly be twice as quick as the corporate’s present choices.
So AMD could discover it troublesome to make any progress in opposition to Nvidia within the GPU market, particularly provided that the latter has secured a considerable provide of elements that might assist make up a considerable portion of gross sales in 2022. Because it seems, Nvidia was the one GPU maker to extend gross sales within the third quarter of 2021.
John Peddie Analysis estimates that $54 billion price of GPUs shall be bought yearly by 2025, in comparison with $23.6 billion in 2020, and AMD is not in an incredible place to take over because of Nvidia’s presence. In consequence, AMD could miss out on a pointy enhance in GPU gross sales in 2022 and past, and this missed alternative might finally weigh on the inventory value.
Teresa Kersten, an worker of Microsoft’s subsidiary LinkedIn, is a member of The Motley Idiot’s board of administrators. Harsh Chauhan has no place in any of the shares talked about. The Motley Idiot owns and recommends Superior Micro Units, Intel, Microsoft and Nvidia. The Motley Idiot recommends Nintendo and recommends the next choices: lengthy January 2023 $57.50 name on Intel and quick January 2023 $57.50 name on Intel. The Motley Idiot has a disclosure coverage.