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AMD: New "A" in the FANG?

Happy Labor's Day to everyone. The month of Sept is here - one of the worst month in terms of market volatility and precursor to even dreaded Oct month. Sept 15 will be 10 year anniversary of famous Lehman Bankruptcy which started great recession of last decade. So it's time to pause, reflect and decide what's best strategy for remaining 4 months of 2018. 
The market voted unanimously who is winning the battle of trade wars between US and China with US markets reaching all time highs and Chinese markets entering into bear territory. This is one the reason China is entering into discussions again. The "Game of Chicken" between US and China may be entering into decisive phase in next few weeks. And that's good for markets.
Now let's look at best performing S&P stock of the year - AMD and what I mean by new "A" in FANG. As most of you must be knowing, FANG represents 6 companies (originally there were 4): Facebook, Apple/Amazon, Netflix/Nvidia and Google. The FANG stocks have done very well over last 5 years and hence  everyone love the term FANG. 
It's time to look at new members of FANG. So let's start with A:
Last year I wrote about "kid stocks (stocks trading below 18)" in which I recommended AMD at around $11 (other breakthrough stock was NTNX which went from $18 to $56). While AMD hovered around $11 for many months after that, 2018 brought a new level of excitement to AMD stock gaining 140% YTD reaching $25. One would be crazy to talk about investing in AMD when it's stock had already gone from $2 to $25 in less than 3 years (it was under $2 in early 2016). So let's look at which factors could continue the momentum.
  • AMD is in two of the hottest sectors of semiconductor industry (albeit as distant 2nd)
    • Data center CPU (Intel is leader with 99% market share)
    • AI/ML focused GPU (Nvidia is undisputed leader)
  • AMD has very low market share has potential to increase to double-digit
  • Cloud titans (and almost every other vendor) are looking to diversify their CPU choices with x86 architecture. (ARM was considered as credible alternative but needs lots of refactoring of applications so most likely would remain a choice for mobile and IOT)
  • Intel's recent mishap w.r.t. 7 nm with rollout pushing out to late 2019
  • Increasing use of CPU/GPU across Smart-cars, IOT, Crypo-mining, AR/VR devices
  • Better and consistent execution by AMD CEO and team
  • Significant short interest in AMD stock
  • Capex-lite strategy (AMD sold its fabs few years back to Global Foundry and uses TSMC for MFG)
All these factors are in favor of AMD as long as company keeps on executing on its technology roadmap, expand available markets and deliver consistent quarterly results. If you look at NVDA chart, 3 years back it was trading around $25 (exact same price as AMD today) and now it's 10 times that price. So for all these reasons, its time to add AMD to be part "A" of FANG!
/Shyam

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