Should You Buy Advanced Micro Devices, Inc. (AMD) Stock After The Naples Preview?

Advanced Micro Devices, Inc.'s Naples Server CPU is all set to challenge Intel Corporation's data center dominance. AMD stock could gain big from this. Should You Buy Advanced Micro Devices, Inc. (<b><a href=''>AMD</a></b>) Stock After The Naples Preview

Shares of Sunnyvale, California-based Advanced Micro Devices Inc (NASDAQ:AMD) took a beating last week after investors got spooked by mixed reviews of its Ryzen CPUs. Many on the Street believe that the recent pullback was a selling on the news pattern. The bulk of the rally in AMD stock price had been driven by the expectations surrounding its Ryzen CPUs. In the near term, AMD stock needs a new catalyst to drive the stock higher. Now, AMD stock is trading around $13 falling from its 10 year high of $15.55. One should not write off AMD stock yet as the Naples Server CPU could be the next growth catalyst for AMD. AMD previewed its Naples Server CPU yesterday on March 7th and well, the preview suggests that the Sunnyvale-based chipmaker is set to challenge Intel Corporation's (NASDAQ:INTC) monopoly in the data center segment. AMD stock at these levels looks very attractive given the tailwind from Naples. Here is why.

What do Initial Naples Benchmarks say?

AMD is planning to capture the 1-2 socket server market with its Naples server CPUs. Naples CPUs are set to take on Intel's Xeon lineup. AMD has a Zen Naples SKUs range of 16 to 32 core. A Wccftech post expects the latest Naples CPUs to be top notch on performance since each of them is multi-threaded and Zen has "52% IPC over its Opteron based predecessors". The post also reports that the latest AMD server CPUs " would also prove a great process for efficiency optimizations" as they are of 14nm FinFET. Naples server chips with 32 cores could come with 64 MB of L3 cache. This is very disruptive. AMD could deliver a very competitive product for server platforms if it manages to deliver 64 threads available for hyper-threaded workloads along with the large cache. The Wccftech coverage also suggests that Naples would be packing over 19 Billion transistors taking a cue from the single Ryzen 8 core chip, which is a substantial amount for a server.

AMD claims to exceed Intel’s top Xeon offering, the Xeon E5-2699 V4, on critical parameters "with 45% more cores, 60% more input/output capacity (I/O), and 122% more memory bandwidth". The Intel chip is of 14nm process node, based on Broadwell architecture. In one of the demos shown by AMD during the preview event, the Naples CPU performed a sparse matrix calculation on a 3D data set in 18secs compared to Intel CPU's timing of 44secs. Both had similar configurations. The Naples server chips bettered its previous timing by another 4s when allowed to run on all configured cores. However, we should be cautious to take all these benchmarks on face value, as no details of clock speeds, overclocking and full configuration details of both CPUs were shared by AMD. Though one needs to take all these performance metric results with a pinch of salt, there's no denying that the Naples server chips could deliver substantially better performance in memory bandwidth-bound applications given impressive Ryzen benchmarks on desktop applications.

Why AMD Is Set To Gain Big From Naples Server CPUs?

AMD's server business was one of its best performing units in the past and had almost 25% market share in 2006 when its business was at its peak. AMD has less than 1% server market share now and Intel has a complete monopoly here at present. A post on ExtremeTech highlights the reason why AMD can gain big from Naples Server CPUs. To quote from the post on that: "Intel’s data center business was worth $17.2 billion in 2016, up 8% from 2015. If AMD can capture 5% of that business, that’s $860 million of additional revenue per year, and it’s revenue that comes with a nice margin." The argument stated is very reasonable and AMD chips just need to be competitive to gain that market share which is very likely. To add to that, Intel's chips are priced high, with the most expensive chip selling for $8,898. AMD is known for competitive pricing as evident in the Ryzen pricing which should help AMD's cause. Nathan Brookwood, principal analyst at Insight 64 also agrees to that saying "If you have comparable performance, then pricing's a big deal" in the server market.

Forrest Norrod, AMD's server chief conceded that Intel's chips would perform better with respect to some applications. But he also states that "AMD's Naples has its own unique features that could help the company come firing back into the server market." Matt Eastwood, senior vice president, Enterprise Infrastructure and Datacenter, IDC was really optimistic about AMD's chances in the server market as he states "Looking at the product details announced today, it sounds like a compelling combination that will give IT buyers a unique new option to consider when making their next upgrade."  Also, AMD targeting the data center market is a wise move since the data center market is expected to grow at a rapid pace in next few years whereas PC market is seeing a continuous decline.

What Lies Ahead For AMD?

The initial benchmarks seem to suggest that AMD would deliver a very competitive product in Naples server CPU. However, we should not jump to conclusions so soon as the Ryzen CPUs failed to live up to the initial hype. AMD Naples will be launched in Q2 2017. The Sunnyvale-based chipmaker is actively working on delivering Vega GPUS around the same time as Naples so that these could be coupled to Naples processors. That would be a double whammy for Intel. Naples Server CPUs are likely to challenge Intel's market share but if the server chip moves in volumes similar to that of its desktop counterpart which has been in the top selling CPUs on Amazon, that could significantly improve AMD's financials. AMD stock is likely to gain from the Naples Server CPU launch. AMD stock looks attractive at these levels as it could head higher on product launches in Q2.

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