Advanced Micro Devices (AMD) spent a large portion of 2015 being punished by NVIDIA (NVDA) for its mistakes and underperformance. As a result, shares of the company plunged considerably in 2015 and the stock carried its downward momentum to 2016 as well.
However, AMD recently delivered better-than-expected earnings report which saw its shares jump over 40% in just one trading session. AMD has sustained its rally and is now up almost 100% from its year-to-date lows. I recommended buying the stock just before its rally and although the stock has moved considerably higher since then, it can continue moving higher due to several reasons mentioned below.
A lot of upside potential
A look at AMD’s financial statements indicates that the company is in severe problem. The company’s revenue plunged 28 percent previous year mainly due to the sluggish PC sales. The company lost market share to Intel and NVIDIA in the CPU and GPU market, respectively. Moreover, the company reported a net loss of $660 million associated to $3.99 billion of overall revenue, a consecutive fourth yearly loss. All in all, the picture for the stock is ugly. However, since the stock beaten down, it is also a turnaround candidate. And as many of you would know, turnaround stocks tend to rally hard even on the smallest bit of good news.
AMD anticipates 2106 to blot the turning point of its struggles to get the business on the right track. The company’s guidance suggests coming back to top-line growth, mainly due to the new semi-custom design wins and the imminent release of its graphics cards based on Polaris architecture. Non-GAAP operating profitability is likely to return throughout the other half of 2016, a huge enhancement as compared to previous year.
AMD delivered enthusiastic guidance previous year, but the company was not able to come even close to that guidance and was forced to evacuate those goals just a few months later. This is the reason why many investors do not believe the company’s guidance anymore.
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